All Nippon Airways acquisition of Skymark and its A380s would be difficult but with upside for both

Talks between All Nippon Airways and Skymark Airlines could result in Japan's largest airline investing in Skymark, a 1998 start-up that carved a successful middle-market niche but now finds itself owing Airbus somewhere around USD1 billion for its Jul-2014 cancellation of a misguided order for six A380s.

Under the proposal, ANA would take Skymark's A380s and deploy them in the domestic Japanese market in a high-density configuration. Skymark would retain its own brand and operation, so the cooperation would extend beyond simple codesharing but stop short of a merger, which for various reasons is out of the question. ANA has similar but smaller partnerships with two other domestic carriers, Air Do and StarFlyer.

Airbus is understood to be backing the proposal as it wants to see its contract fulfilled, aware it could potentially put Skymark out of business over reparations for the A380. The manufacturer is understandably sensitive about criticisms of the A380 and keen to maintain the recently forged presence in the Japanese market. The Japanese government too would be likely to support a solution that keeps Skymark in Japanese hands.

The largest issue is that ANA and Skymark would need to agree on a price for a partial investment, made difficult as Skymark's stock plunged after the A380 cancellation. On this accounting ANA could gain a substantial position in Japan's profitable domestic market for the price of one or two widebody aircraft. Relations between ANA and Skymark remain cool, and Skymark's mercurial leader would want to try to retain as much independence as possible. ANA and Skymark would also have to decide if Skymark will target the low-cost or full-service market, but either way ANA could potentially learn about running a more efficient airline. Otherwise however synergies may prove limited; ANA could enhance its domestic market share, especially at Tokyo Haneda airport, but with few benefits beyond that.