Singapore Airlines: Tough Days Ahead Despite Rights Issue

·3-min read
Singapore Airlines: Tough Days Ahead Despite Rights Issue

Singapore Airlines Limited (SGX: C6L), or SIA, is going through an extremely rough patch at the moment.

The COVID-19 pandemic has all but decimated demand for air travel, and continued border closures and travel restrictions continue to weigh heavily on the airline’s performance.

In late-March, SIA announced that it will cut 96% of its capacity that had been scheduled till end-April, in light of border controls around the world.

A few days later, Singapore’s flagship carrier announced a massive rights issue of 3-for-2 shares at S$3.00 per rights share.

Aside from the rights issue, SIA will also issue mandatory convertible bonds (MCB) at S$1.00 apiece at a ratio of 295 MCB for every 100 shares owned.

Despite this herculean effort to shore up its balance sheet, SIA still faces tough days ahead as the storm is far from over.

Load factor fell off a cliff

When SIA reported its March 2020 operating results, the damage from the pandemic became clearer.

During the month, the number of passengers carried on all SIA passenger flights fell 65% year on year to 1.1 million.

Passenger load factor, the ratio of passengers who flew SIA versus its maximum capacity, plunged from 81.5% to 57.4%.

The airline also warned, at the time, that capacity cuts may have to be extended if travel demand continues to remain low.

By end-April, the group announced that flight cancellations were extended till end-June. Customers whose flights were affected will retain the full value of the unused portion of their tickets as flight credits.

A massive cash call

On May 6, SIA’s shares went ex-rights for the massive cash call announced back in late-March.

The S$8.8 billion fund-raising exercise had received shareholders approval in an extraordinary general meeting held on April 30.

At the end of the trading day, the share price closed at S$4.40, around 5.7% higher than the theoretical ex-rights price of S$4.164 but significantly below the S$6.50 that the shares traded at prior to the rights announcement.

First-ever full-year loss

This morning, SIA released yet another trading update.

In it, the airline again emphasizes that air travel and the aviation industry have been severely impacted.

Not only have SIA and SilkAir witnessed capacity cuts of 96% each, but Scoot is expecting capacity cuts of up to 98%.

To make things worse, the collapse of fuel prices in March 2020 has led to large fuel hedging losses on contracts maturing in the final quarter of the fiscal year 2019/2020.

As a result of these capacity cuts and marked-to-market hedging losses, SIA expects to report its first-ever full-year net loss when it announces its results on May 14.

Get Smart: SIA is not out of the woods yet

At this point, it remains uncertain as to when travel curbs will be removed, as the pandemic continues to rage on in multiple countries without abating.

According to information from, the reopening of Singapore’s borders will start small and be highly selective, and will depend heavily on the level of community spread.

SIA has also warned of further fuel hedging losses in the first quarter of fiscal year 2020/2021.

Capacity cuts may end up being extended past June 30 if the situation does not improve.

Though SIA’s entire management team and board of directors have collectively taken pay cuts of up to 30%, it seems the airline is not out of the woods yet.

Investors should keep abreast of the latest developments for the airline as the crisis remains dynamic and fluid.

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

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