Air Do (HD, Sapporo Chitose) and Solaseed Air (6J, Miyazaki) have confirmed earlier reports that they will merge in the second half of 2022 under a newly-formed joint holding company. They also announced a fundraising share issue through a third-party allotment to the state-owned Development Bank of Japan.

Based at opposite ends of Japan, with Air Do on the northern Japanese island of Hokkaido and Solaseed Air on the island of Kyushu in the far south, the two airlines have both the Development Bank of Japan and ANA Holdings as major shareholders.

They are also both fighting a slump in earnings because of Covid-19 and see unity under a single holding company by around October 2022 as a survival tactic.

“Each of us is making self-help efforts, but there are limits,” Susumu Kusano, president of Air Do, explained at a press conference in Sapporo, as quoted by Nikkei.

His thoughts were echoed by Kosuke Takahashi, president of Solaseed Air, who said said at a news conference in Miyazaki: “We cannot survive unless we strengthen cooperation through a holding company. To overcome the tough business environment and be prepared for a post-coronavirus world, we need to undertake drastic reforms.”

The new company aims to cut JPY3 billion to JPY5 billion yen (USD27-45 million) per year in spending within four to five years by sharing facilities, combining some personnel, and reducing costs thought joint procurement of parts, Takahashi elaborated.

The carriers’ names will be retained, while the name of the holding firm, the investment ratio of each party, and other details will be decided over the coming months. As previously reported, the two airlines have Boeing fleets and no overlapping routes in priority areas.

“We will continue to have independence as regional carriers,” Takahashi said.

To bolster their finances for now, Air Do and Solaseed Air will raise JPY7 billion (USD63.5 million) and JPY2.5 billion (USD22.7 million), respectively, by issuing preferred shares mainly to the development bank, the Japan Times reported. Each company also plans to ease its tax burden by cutting its capital to qualify for the “small” company category in the country’s tax system.

In the fiscal year to March 31, Air Do slumped to an unconsolidated net loss of JPY12.1 billion (USD110 million) from the previous year’s profit of JPY400 million (USD3.6 million). Solaseed Air fell to a JPY7.6 billion (USD69 million) net loss from an earlier JPY900 million (USD8.2 million) in profit.