Delta Seeks Role in Japanese Airline's Turnaround

TOKYO—Delta Air Lines Inc. offered to support Japan's financially troubled Skymark Airlines Inc., a proposal that would give the U.S. carrier a stake in the domestic Japanese market.

Skymark, Japan's No. 3 airline by passengers flown, has been searching for a path to rehabilitation since filing for bankruptcy protection in January. Management has proposed giving a leading role to ANA Holdings Inc., which along with Japan Airlines Co. dominates domestic air travel.

But the ANA-centered plan has run into opposition from Skymark's largest creditor, U.S. aircraft-leasing company Intrepid Aviation, which said Wednesday that it would offer an alternative plan working with Delta.

If approved by creditors, the Intrepid-Delta plan would give foreign investors a foothold in some of the world's busiest air routes, including Tokyo-Fukuoka. It would also give Delta a long-sought partner. ANA is already allied with United Continental Holdings Inc., while Japan Airlines has teamed up with American Airlines Group Inc.

"We have been looking for an opportunity to have an alliance partner in Japan," said Masaru Morimoto, Delta's managing director for Japan, at a news conference.

Mr. Morimoto declined to specify the size of the stake Delta is seeking. The maximum foreign ownership permitted is 33.3%. Mr. Morimoto said Delta is willing to help Skymark create a new business model that would include a mileage program and standardized reservation system.

Skymark's slots at Tokyo's Haneda airport are especially attractive for Delta. Skymark controls 36 arrival and departure slots at Haneda that are for domestic flights only. That is about 8% of the airport's domestic slots.

Under transport-ministry rules, if a carrier owns more than 20% of another airline that holds Haneda slots, those slots might have to be returned—a restriction that could keep Delta's stake in Skymark at 20% or below.

A Delta-Skymark alliance wouldn't solve all of the U.S. airline's problems in Japan. Most of Delta's flights to Japan arrive at Narita airport, about 90 minutes away from Haneda by train, meaning it wouldn't be easy for Delta travelers to make Skymark connections.

Mr. Morimoto said Delta is looking to the longer term, suggesting that the Skymark alliance could be more useful if the day comes when Delta can fly more popular international routes to Haneda.

ANA said it believes it remains the best candidate to sponsor Skymark's journey out of bankruptcy court, given its experience in helping other airlines. A JAL spokesman said it is ready to compete regardless of who wins control of Skymark.

The bankrupt airline's creditors are slated to choose between the two rehabilitation plans at an Aug. 5 meeting. Absentee ballots will be accepted through July 24.

Intrepid, the leasing company and Skymark creditor, initially supported ANA's participation in Skymark's restructuring. Intrepid and ANA discussed a deal under which ANA would pick up the lease on seven aircraft that Intrepid had been leasing to Skymark. After that deal fell through, Intrepid decided to look for other options.

Intrepid president Franklin Pray said Delta doesn't plan to lease the planes from Intrepid.

Write to Megumi Fujikawa at [e-mail]

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