Singapore Airlines

Crash Landing On You

COVID-19 had been wreaking havoc around the globe. Impacting lives, livelihood and social fabrics. Airlines were one of the hardest hit. Singapore Airlines on 23-Mar-2020 announced grounding 96% of her aircrafts until end April-2020. Share price fell from $9.10 in January to $6.08 on 27-Mar-2020. 

History

The company began life in 1947 under Malayan Airways Ltd insignia serving Malaysia domestic travellers. Was renamed Malaysia-Singapore Airlines (MSA) in 1966 when both governments gained control of the company. Singapore Airlines was established in 1971; growing her fleets to capitalise on the growth of international travel. 

Segments

As of FYMar19; segments and revenue are as follows:

  • Singapore Airlines: 80% revenue. Cargo Operations was integrated in Singapore Airlines reporting on 1Apr18. Revenue pre-integration was about 13%. 

  • SilkAir: 6% revenue.

  • Budget Aviation: 10% revenue.

  • SIAEC: 3% revenue. 

  • Airport Terminal Services: SATS was de-consolidated from the group in Sep-2009. 

Financial Performance

Revenue grew 3% in FYMar19. For the first 9-months of FYMar20; revenue was up 4.4%.

Operating margin have been trending up since FYMar14, peaking in FYMar18 due to favourable fuel prices. 

Net profit in FYMar19 was 48% lower due to higher fuel prices and partly higher depreciation. For the first 9-months of FYMar20; net profit was up 8.3%. 

Debt

In Oct17, SIA signed a US$13.8B order for Boeing aircraft with delivery from FYMar20 to FYMar22. 

Aircraft assets have doubled from FYMar16, $10B to $22B and with it, debt level increased substantially as well. Z-Score reflected this shift in risk profile.

Crash Landing On You

Since January, global travels were already gradually shutting down around the world. Then on 23-Mar Singapore Airlines announced grounding of 96% aircraft fleets until end of April. 

On 27Mar20; SIA announced 3-for-2 rights issue @ $3.00 to raise $5.3B in new equity and to raise up to $9.7B via mandatory convertible bonds. The company have also arranged a $4B bridging loan facility with DBS bank. 

Opinion

Prior to COVID-19, Singapore Airlines performance had been improving steadily with growth in revenue and operating margin. 

Taking on debt with the expectation of continue growth in global travel make sense. 

However, this pandemic is forcing a change in business assumptions; requiring the company to shift towards defensive play. Raising funds via equity and bonds is therefore a sensible move. The firm aggressive actions to reduce SG&A would also position the business for survival in a difficult operating environment. 

Meanwhile, cargo operations and aircraft engineering will play an important role in sustaining cashflow. 

Many travel companies could be decimated by this pandemic. Post-crisis, Singapore Airlines with her aggressive cost cutting and funds raised will position the company for growth in air transportation.

This pandemic will come to pass ... like all past epidemics; as we learn to live with it; with vaccines and medical systems in place.

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