Crash Landing On You

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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. 

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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. 

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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. 

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Financial

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%. 

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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.

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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. 

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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. 

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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. 

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

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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.

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