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Singapore Airlines Has Exhausted its Remaining $600 Million from the 2020 Rights Issue: Should Investors Worry?

·4-min read
View from Airplane Seat
View from Airplane Seat

Singapore Airlines Limited (SGX: C6L), or SIA, recently released an update on the usage of the monies raised from last year’s massive rights issue.

Of the S$8.8 billion raised from the rights exercise, the group announced that the remaining S$600 million has been used up on aircraft and aircraft-related payments for its fiscal 2022 second quarter.

The money raised was spent within 18 months on various aspects including the paying down of various loans (S$3.8 billion), operating expenses (S$2.2 billion), and ticket refunds (S$1.4 billion).

Recall that this huge sum was raised by SIA back then to tide it through one of the worst periods in the history of the airline.

Fast forward to today, and the situation hasn’t changed significantly.

Borders remain shut for most countries as the COVID-19 delta variant is still spreading like wildfire across the world.

The situation begs the question.

Should investors be concerned that SIA has utilised all the money it had raised? 

Could there be another cash call coming?

Alternative sources of funding

At the moment, Singapore’s sole airline has sufficient backup plans.

Just three months ago, it completed the issuance of additional mandatory convertible bonds (MCBs) that helped to raise an additional S$6.2 billion in cash.

These funds have yet to be utilised and the group also has access to S$2.1 billion of committed lines of credit that can be tapped at a moment’s notice.

The MCBs helped to boost SIA’s total cash and bank balance as of 30 June 2021 to S$13.6 billion, a fairly substantial sum that should help to tide the airline over for many more months.

A quick check showed that SIA had managed to reduce its cash burn rate to between S$100 million to S$150 million per month, far below the S$350 million per month at the onset of the pandemic.

As it stands, the stash of cash and lines of credit should provide a sufficient buffer to the airline that can last for years if need be.

An improvement in financial and operating metrics

Meanwhile, SIA’s financial and operating metrics have improved.

For its fiscal 2022 first quarter ended 30 June 2021, total revenue jumped by 52.2% year on year from last year’s low to S$1.3 billion in the latest reporting quarter.

Although the airline chalked up an operating loss of S$274 million, this reported figure was nearly three-quarters lower than the S$1 billion loss incurred in the same period last year.

Net loss stood at S$409 million, significantly lower than the prior year’s S$1.1 billion.

There are signs that last year was the nadir for the group. 

The August 2021 operating numbers should also give investors hope.

Passengers carried nearly quadrupled year on year from 39,800 to 155,400, while its Singapore Airlines cargo division saw its capacity climb by 46% year on year and freight tonnage surge by 56.2% year on year.

VTLs offer a reprieve

The numbers could see further improvement from this month onwards as the government has successfully rolled out its vaccinated travel lane (VTL) arrangement.

The first two countries to be included in the VTL arrangement are Germany and Brunei.

The requirements are fairly onerous and will add to passengers’ total costs, but flights with more than 900 passengers have successfully arrived in Singapore earlier this month.

Only one traveller among the hundreds has tested positive thus far, lending confidence that the VTL arrangement works and that this can be a viable way forward for borders to slowly reopen.

Transport Minister S Iswaran also sounded a note of optimism by stating that “the system is working and we are gaining confidence with it”.

Several countries and regions have expressed interest in the VTL after witnessing its initial success.

Singapore is hopeful that VTLs can be expanded to other countries in the coming weeks or months.

It’s still early days, though, and the minister was unable to provide a concrete timeline for Singapore’s border reopening plans due to the dynamic nature of the pandemic.

SIA should benefit from the success of the VTL as they offer a welcome reprieve from the challenging conditions the airline had faced thus far.

Get Smart: Not as dire as expected

The situation isn’t as bad as the headlines make them out to be.

SIA has a healthy cash kitty and can tap on additional sources of funding if need be.

The company’s cargo division is enjoying healthy utilisation while passenger numbers have also been creeping up.

Finally, VTLs offer a glimmer of hope that borders can be reopened, albeit on a limited scale.

Investors will have to be patient, though. We are still in the early days of recovery. 

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

The post Singapore Airlines Has Exhausted its Remaining $600 Million from the 2020 Rights Issue: Should Investors Worry? appeared first on The Smart Investor.

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