DestinAsian

SIA will survive the current COVID-19 crisis with strong backing from Temasek Holdings as it is an iconic brand of Singapore and an important asset to the country's economic activities.

It's aviation business is intertwined with its crown jewel (Changi Airport) and associated aviation businesses backed up the state controlled investment house, Temasek Holdings. It's an advantage they can afford to tap into during such crisis.

With the recent announcement on its financing package, the airline said it would issue S$5.3 billion in new shares to current shareholders and also issue 10-year bonds to raise up to a further S$9.7 billion. In addition, it has arranged a S$4 billion bridge loan facility with DBS Bank to support the company's near-term liquidity requirements.

The rights issue will be offered at S$3 per share which will dilute the shareholding and will allow Temasek to take full control of the airline and take it private.

In the words of SIA Chairman, "this is an exceptional time for the SIA Group" as it battles with grounding of its flights, significant fuel hedging losses that are marked until 2025 and recovery which no one can predict. However, the financing package allows alot of flexibility to the company but challenges with other group companies and investments in NokScoot, Vistara will also pose significant challenges for which it will require additional capital to inject in the business.

With this encouraging news, this is not to say that they are out of the woods. They have significant challenges and battles ahead to resolve and going by the way they have handled the refunds, change fees and capacity management, let's hope they can act faster and more prudently. SIA tends to follow rather than lead.

sbs2716g

SQ should give up on fuel hedging. Looking through the financial reports, most of the time they are losing money. Even during the few years that they have some hedging gain, the amount is very little compare to the lost.

Really do not understand why they are hedging at US100++ dollars during 2014 period when the oil price went up.

DestinAsian

SQ has a large fuel hedging losses on hand until 2025 and there is no prediction as to how long this crisis will take to recover. With oil at its lowest point, the hedging losses are increasing. With the recent financial package in the form of a bailout by its state owned investment firm, Temasek Holdings, it will go towards offsetting the current losses along with preparing them for growth in the long term. However, this will put pressure on their balance sheet.

It would have been interesting to see how the management would have overcome this crisis without the early bailout by Temasek. I'd imagine that such bailout should be the last resort but I am sure there is some objective in doing this now. My prediction is for Temasek to take Singapore Airlines private via a cheap buyout given the huge discount that the shares are trading at the moment.

We are living in unprecedented times and this crisis will surely put SIA into its toughest test in his history. Let's see how things pan out but I am cautiously optimistic on a strong recovery towards third quarter of 2020.

lokijuh

How does their hedging work? I ask, as if they are not flying (or only flying 4% of their previous schedule), they wouldn't be purchasing much fuel at all, so their hedging losses wouldn't be as great. I guess when things ramp up again, albeit probably quite slowly, they will have losses, but not as large as if they were flying their 2019 schedule.

sbs2716g

they still have to pay for the differences based on the amount they hedged even if they are not flying.

Really do not understand why they need to do hedging. Even with hedging in the past they are also implementing fuel surcharges on the air fares.

if need to do hedging should do when the prices is low. When the price is high really not much point to hedge.

dickie98

Let us all hope this prediction does not come to pass. Otherwise, look to a gradual decline in service levels as corners are cut in the name of squeezing out higher EBITDA and an eventual relisting of the airline formerly known as SQ.

sbs2716g

Whatever saving they have for the past 3 years for the transformation plan , have been wiped out in one month.

Still think they have to relook their hedge policy.

lokijuh

That's normal modus operandus when taking companies private. But Temasek is no normal private equity fund, it IS Singapore Inc. Whilst they want, need to make loads of money for Singapore Inc, at the same time they've got their eye on the long term and so stuffing around with SQ too much may not be in the interests of Singapore as a whole. Who knows.

And in a more humorous vein, when this is all over in six months or a year or two, someone sure as night as day will still need to fly the bankers back and forth between Singapore and New York, London, Zurich, Hong Kong, Tokyo, Sydney and Shanghai. And sure as night as day, they won't want that to be BA, UA, QF, LX and MU!.

lokijuh

Thanks for clarifying. I understand why companies hedge, to deal with the short term risks to cashflow and provide stability. Important where there is a quarter to quarter or year to year focus. But can't help but think that in the end, like casinos, the house always wins.

DestinAsian

A little too late as their hedging runs until 2025 and that too at very high price and percentage. I don't see oil prices recovering anywhere to the levels they have hedged for the next 5 years. We are in for a large global impact with prolonged recession and propensity for travel will be much lower as people will need to fix their bank balances which will take years.

Keeping on tracking with post crisis growth and all the outstanding aircraft orders and expansion, this is risky strategy but what the heck, they got their billions from bail out. I would have expected them to have sorted things out first before turning to their state investment firm for the bail out. Makes you wonder on the magnitude of their issues on hand - fall in premium traffic and overall demand, high capex and not to mention the huge fuel hedging losses over the next 5 years.