Skymark is bankrupt and is a case study for an airline’s eyes being too big for its stomach. We were not alone in finding this airline’s order of A380s – especially six of them – to be over the top. Airbus, of course, grabbed the order because they need every one. Plus, breaking into Japan was irresistible to Airbus before it won the JAL campaign.
But here we are, Skymark is in deep trouble. In Toulouse last week we noticed a new Skymark A330 on the stand, seemingly ready for delivery. That’s clearly not going to happen. Intrepid Aviation leased a number of A330s to the airline. Apparently Intrepid Aviation is owed ¥100bn by Skymark which is about one third of its total debt of ¥320bn. But being on the hook for an A330 is a “relative breeze” – as these aircraft sell easily as the market loves them – especially when compared with the slow selling A380.
The stakes are high. Franklin Pray, Intrepid Aviation’s CEO, is quoted in Aviation News saying: “If Skymark’s creditors, of which Intrepid Aviation is the largest, Airbus is the second and Rolls Royce is the third largest creditor, vote against the plan filed by Skymark, the airline will go into liquidation…”
Airbus is on the hook with two A380s in Toulouse that were built for Skymark, one of which even had a test flight. You can see them in the picture at the back with the beige body and blue tail. They remain all covered up, and are not going anywhere soon.
So what does Airbus do now? Obviously it wants those two aircraft off the stand and in the air somewhere. We can’t see these aircraft ending up in Japan. Airbus and Intrepid are going to block any rescue deal involving ANA and investment banks to bail out Skymark. Intrepid and Airbus both seem pretty clear about this. As the largest creditors they clearly have some say in the matter. The two creditors are owed $1.6bn and will use their position as principal creditors to veto any rescue deal that does not take their interests into account, or introduce an alternative plan that does. This is perfectly rational.
Airbus initiated the Skymark bankruptcy for failing to make progress payments on its A380 order. Airbus was apparently keen to support an ANA-backed rescue on the basis that existing Skymark A330 leases and A380 orders would be taken on board by the consortium.
So who is in the better position? We expect the Japanese courts to favor the ANA rescue plan and thereby save the rump of Skymark and help ANA move this process forward. Even if this happens, Skymark (possibly ANA?) will face penalties.
Airbus does not want those aircraft parked in the picture to remain parked. But how badly do they want them gone? Certainly not badly enough to place them with another weak airline. The worst outcome is to associate the A380 with failed airlines. So Airbus will be very careful. The Skymark aircraft will be on deep discount and also need to be modified for any other airline.
Lemonade from Lemons?
Airbus’ position is not as uncomfortable as one might think. Indeed the Skymark bankruptcy might give Airbus an opportunity it might not otherwise have had. Recall that Airbus could not break into the US market with its first A300. So it made a very favorable offer to Eastern Airlines to try them out. Eastern went on to buy a number of them. Then American bought them. FedEx and UPS still use them. The Eastern bet paid off.
Given that precedent, Airbus could (for example) be speaking with any or all of the big US three and make them an irresistible offer – or indeed try the same proposition with any other ambitious airline (Turkish?) to try the A380. Whatever “loss” Airbus suffers could be partly offset by the Japanese settlement of Skymark’s bankruptcy. Probably at pennies on the dollar, but greater than zero which is the current situation with parked assets. Plus there could be huge upside benefits getting the A380 into the hands of a strong airline.
Airlines are risk averse and the A380 is a big airplane; very big. Only the strongest airlines can really exploit its capabilities. As we have seen with Emirates, in the right hands, the A380 is an overwhelming machine to compete against. The US Three make a fuss about the ME Three – but look at a 777 used by the US three next to an A380 and the image is quite clear.
Imagine that a US airline is offered an A380 at essentially the same price as a 777. Especially if the A380 is used between Heathrow and JFK, where alliance partner seat sales offset demand risks and also free up precious and pricey slots at Heathrow. Such a scenario isn’t impossible. The US network carriers are flush with cash and the future looks better than ever. And in the airline business, nothing says you’re doing great like a big shiny new airplane – especially two that could effectively serve the market while replacing three smaller aircraft, providing the same capacity at lower cost.
The Skymark bankruptcy could provide the impetus for a US carrier trying out the A380. Sometimes bankruptcies might or can have strange results.
That’s a very thought-provoking post, particularly considering that American Airlines’ alliance partner British Airways already operates the A380 and Delta’s equity partner Virgin Atlantic Airways has six A380s on order which it has deferred and reportedly doesn’t want. Meanwhile, United Airlines’ alliance partner Lufthansa already operates the A380 in the peak summer season to JFK (as well as the Boeing 747-8I) and Delta’s alliance partner Air France has operated the A380 to JFK for years. With traffic on the North Atlantic on the up-and-up this year so far and yields seemingly beginning to falter a little, maybe it’s time one of the U.S. behemoths acquired an aircraft type in keeping with their corporate size.
The A300 was the perfect replacement for the trijets. It burn 23% less fuel. American and Eastern use it as a replacement of the DC-10 and L-1011. Now according to seeking alpha the a380 could work in san francisco as it has the necessary size to put an a380 and has large asian population. Such move will reduce precisous slots for the a350-1000 and find a US carrier to buy the aircraft.Plus united can increase capacity have a 747-400 replacement and offer a world class product. The london to new york service is frequent oriented so i do not think that an aircraft large than a 777-300ER is needed.
This article further proves that the A380 is dying of a slow and arduous death. Cancellations, deferrals, and no new orders for 18 months straight. Aside from these new planes sitting on racks, there are already A380’s scheduled to come off lease in the coming years and available for the used market. Leasing companies are having a tough time lining up replacement operators. And this is just the bad news on the industry side.
The consumer side is that the flying pubic hates cattle cart style seating. So high density seats will be and have primarily been used only for LCC’s, not main line service. The common business plans for LCC’s are low operations costs including labor, infrastructure, and aircraft type. There’s a reason why no LCC’s in the industry operate profitability with 4 engine planes and mostly single aisle Airbus and Boeing types are used. So forget about A380’s, new or off lease, being reconfigured with high density seats double deck and double aisles and operated by LCC’s.
Even if one operator can fill a 800-plus seat aircraft, say for densely populated countries like China, Indonesia, and India, regularly in either main line service or LCC’s budget service based on projected demand. Let’s not forget that A380’s require very expensive runway/taxiway upgrades as well as gates/jetbridge and terminal modifications. There are only about two dozen airports in the whole world that can accommodate and load/unload passengers from A380’s. So countries like China and India will have to build up their airport infrastructure first before an A380 can fly in to start passengers service. So by the time that airports are updated, A380’s production line would likely have been stopped. Sad!
Jack, Fact Check…….India and China already have airports handling A380s. India has three at present and the number is slated to grow (not by much however). A380s have been operated by China Southern (?) for many months now.
I stand corrected. There are 40 plus airports in the whole world that can accommodate A380’s. However, India has 2 airports with no confirmed projects at other cities. China has 3 and 1 more in HKG. So 6 airports for over 2 billion people in combined population.
Point is air travel demand and growth are projected in the next few decades to be primarily in Asia, where about a third of the world population lives. But there’s only a dozen airports today that can take A380’s. No airport infrastructure restrictions for A330, A350, B747, B777, and B787 or any of these wide body derivatives.
Operators always thoroughly study a city pair route regardless of aircraft type. Given the restrictions in available airports, other types immediately have an advantage over the A380.
This article hit it on the nose! I can’t confirm whether they are talking with AAL or DAL yet, but they have officially offered UAL to try out the two A380s!