Delta eyes Japan market, seeks stake in bankrupt carrier Skymark

Delta Air Lines is making a play to boost its presence in Japan, offering to take a stake in bankrupt Japanese discount carrier Skymark.

If successful, Delta could gain a partnership with Japan's third-biggest carrier that operates a substantial schedule from Tokyo's close-to-downtown Haneda Airport.

Delta operates an Asian hub from Tokyo's Narita Airport, but the carrier lacks the close partnerships that its two biggest U.S. rivals enjoy with Japan's major airlines. American has a close joint-venture pact with Japan Airlines while United has a similar tie-up with Japan's biggest airline, All Nippon Airways (ANA).

Skymark launched in 1998, with the Financial Times noting it "was the first major budget airline to challenge the duopoly in Japan held by Japan Airlines and All Nippon Airways." But Skymark filed for bankruptcy in January after a rapid expansion effort backfired. That growth plan included an ill-fated order for six Airbus A380 superjumbo jets. Skymark later reneged on the deal and now faces possible penalties from Airbus.

As for Delta's plan, it's backed by Skymark's largest creditor – U.S. aircraft leasing company Intrepid Aviation. Intrepid has come out against a competing plan in which ANA would serve as the rescue partner for Skymark. Now it will be up to creditors, who will vote on which proposal to take on Aug. 5.

Delta has not said the size of the stake it is seeking in Skymark, though The Wall Street Journal notes Japan caps foreign ownership in its airlines at 33.3%.

Aside from offering a Japanese partner, Skymark also is attractive for the 36 "slots" it currently holds at capacity controlled Haneda airport. Japanese rules could force Skymark to abandon some of those if Delta's stake rises above 20%, leading the Journal to wonder if "that could keep Delta's stake in Skymark at 20% or below."

Regardless, Delta expressed enthusiasm for a potential tie-up with Skymark.

"We have been looking for an opportunity to have an alliance partner in Japan," Masaru Morimoto, Delta's managing director for Japan, is quoted as saying by the Journal at a Wednesday news conference.

Morimoto suggested that Delta also could help Skymark upgrade its reservation system and introduce a new frequent-flier program.

But when pressed on the subject Wednesday during Delta's quarterly earnings call, Delta president Ed Bastian struck a cautious tone.

"We've long been fairly public about having an interest in a local, domestic Japanese partner," he said. "This is an opportunity potentially to create that. But I think it's premature to speculate beyond the success of where this is going to go, given their data. There is a lot of unique attributes to the Japanese rehabilitation process that are being explored. We're in the discussion phase."

But Delta would face challenges in fully exploiting the synergies possible from a Skymark partnership. Skymark's main presence is at Haneda while Delta – aside from one route to Los Angeles – flies to Narita. That means any connections would require fliers to make a lengthy trek from one airport to the other.

Additionally, the Financial Times notes Skymark's Haneda slots "are for domestic routes only and airline regulators say they cannot be transferred to international routes, which would provide more opportunities for Delta."

Delta officials acknowledged to the Financial Times that the different Tokyo airports would limit initial connecting options between the carriers, but said Delta was making the move in anticipation of long-term benefits.

Stay tuned ...

Contributing: Bart Jansen