Business / Corporate

Skymark says it may collapse if forced to pay A380 contract fine

Bloomberg

Skymark Airlines Inc., the nation’s third-largest carrier, repeated it is at risk of going out of business should it have to pay Airbus Group NV a penalty after its planned purchase of six A380 superjumbos fell through.

The airline said there is “material uncertainty” over whether the company will remain a going concern and is negotiating with Airbus to reduce the “large amount” of penalty being sought, the carrier said in a statement Thursday. Skymark first flagged this concern in July.

Skymark on Thursday also predicted a loss of ¥13.7 billion ($126 million) for the fiscal year ending in March, reversing a previous forecast for a profit. The carrier paid ¥26.5 billion, more than the airline’s market value, for the double-decker planes, including money to makers of the engines and other parts, it said in July.

“Negotiations with Airbus are likely to continue into next month,” said Skymark spokeswoman Yuka Izumaru. “The weaker yen and intensifying competition with low-cost carriers is impacting earnings.”

The carrier had a net loss of ¥5.7 billion in the six months to Sept. 30, amid increasing competition, the costs of introducing A330 planes, and a weaker yen pushing up fuel costs, it said in the statement.

It will halt unprofitable flights from Narita airport and return two planes it leased from November, it said.

The airline will also sell and lease back engines, a flight simulator and other assets to increase cash, it said.

The Tokyo-based airline’s largest shareholder is former Internet millionaire Shinichi Nishikubo.

Skymark shares have declined 47 percent this year, compared with a 3.9 percent drop in the Nikkei 225 stock average. The shares plunged after Airbus terminated the order for six A380s — worth $2.5 billion in list prices — in July, sacrificing the only superjumbo customer in Japan.

The carrier could face demands for as much as ¥70 billion in penalties, Kyodo News reported in July, citing people familiar with the situation that it did not name. Skymark shares rebounded after the Asahi newspaper said earlier this month that the carrier had agreed to pay between ¥20 billion and ¥23 billion, the amount of prepayments for the double-decker planes, to Airbus, without saying where it got the information.

The airline announced a decision to buy double-decker A380s and start an international business-class service in 2010, breaking from the company’s model of low-fare travel using single-aisle Boeing Co. 737s. Nishikubo said at the time he planned to win market share by charging less than half the price of rivals.

Skymark initially signed a firm contract for four A380s in 2011 and later came back for two more. Airbus said in April that Skymark’s first A380 had performed its maiden flight and was heading for cabin installation and final painting in Germany.

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