SINGAPORE, May 20 — Singapore Airlines (SIA) is not planning further job cuts this financial year, its chief executive officer Goh Choon Phong said today as the national carrier announced another S$6.2 billion round of fundraising to shore up its position.
Goh said the retrenchment of about 2,400 employees in September last year as the impact of the Covid-19 pandemic devastated its business had taken a personal toll on him.
“It was really a very painful process for me personally when we had to do that. I had said at that point in time that I hope not to have to go through it again, and that remains true from my perspective,” said Goh in a briefing with media and analysts.
Yesterday, SIA booked a record S$4.3 billion net loss in the financial year ending March 31, sinking far deeper into the red from the S$212 million loss in the previous year, the first in the carrier’s 48-year history.
The SIA group, which includes SIA and Scoot, booked S$2.5 billion in operating losses in the latest financial year, reversing a S$59.1 million operating profit in the previous year.
However, Stephen Barnes, SIA’s chief financial officer, who presented the results, stressed that the operating loss of S$649.6 million in the second half of the financial year was far lower than the S$1.86 billion loss in the first half, which was when the pandemic was at its worst.
“We can also see that the operating losses in the third and fourth quarter were pretty stable,” said Barnes, adding that the company’s fuel hedging policies also helped reduce the losses in the second half. This is where the airline locks in the price of fuel in advance.
Barnes said the group’s “cash burn” went down from a monthly S$350 million to around S$250 million a month by February 2021, and is now hovering between S$100 million and S$150 million per month.
Around S$2 billion of the net loss was chalked up to non-cash impairment charges, owing mostly to the impairment of around 45 surplus aircraft in its existing fleet. This refers to reducing an asset’s value on the company’s books.
Campbell Wilson, CEO of SIA’s low cost carrier subsidiary Scoot, said that the budget airline was unsuccessful in negotiating deferrals of 10 Boeing A321neo aircraft with the lessors.
By the end of the current financial year, SIA will see a net increase of 19 aircraft to its operating fleet of 168 planes.
Goh added that its 12 Boeing A380 superjumbos “will be put to good use”. The company retired seven A380s last year.
SIA will also be taking delivery of eight Boeing 737-8 Max aircraft into its non-operating fleet, adding to the six Max-8s that it already has that are still grounded by international aviation regulators due to safety concerns following several crashes in 2018 and 2019.
Nevertheless, Goh said the company has reached agreements with aircraft manufacturers Boeing and Airbus to defer more than S$4 billion of capital expenditure in FY20/21 to FY22/23, restructuring its orders to moderate its fleet size for projected needs.
“We started the conversation very early because we felt that it was useful to prepare the (manufacturers) for a potential scenario that we may have to do something massive. As it turns out, it did require us to relook and do something fairly comprehensive,” said Goh of the deferments.
Addressing a question about the new aircraft, Tan Kai Ping, who will be taking over as chief financial officer on May 31, said that SIA intends to use them when they are delivered.
“The reason is really quite simple because the airplanes that are new are more efficient and cost less to operate,” he said.
Outlook for air travel unclear
While the executives said they do not expect large impairments to continue into the current financial year, SIA hopes to secure more resources and liquidity to tide over what it sees as a prolonged crisis.
Goh said that when the company first decided to fundraise S$15 billion last year through rights issuance and through mandatory convertible bonds, it was because nobody could have known how long the pandemic would last.
In a rights issue, existing shareholders are offered the right to buy newly issued shares in proportion to their holdings. Convertible bonds allow the holder to convert bonds — used by a firm to borrow money from investors — into shares down the track.
SIA’s hopes to raise another S$6.2 billion through additional mandatory convertible bonds, which will be the remaining portion of the S$9.7 billion that was approved by its shareholders last year.
The bonds will provide SIA with the flexibility to manage its capital structure, with partial or full redemption of the bonds are allowed every six months from the issue date and at SIA’s discretion. The yield from the bonds will be payable at the point of redemption.
Tan said that SIA’s primary reason for this new round of fundraising is that the recovery of the travel industry is uncertain and that it would be “prudent” to bolster the group’s equity base, and would allow SIA to invest in emerging stronger from Covid-19.
Yesterday, Prime Minister Lee Hsien Loong said that the complete opening of borders and freedom of travel remained “a long way off” in a dialogue organised by the United States Chamber of Commerce.
When asked for his prognosis on the return of passenger travel, Goh said the company too does not expect the recovery to be smooth sailing.
Goh said: “In fact, we do expect that any opening will be someone patchy, because as you already have witnessed, there are new infections, and infections can flare up in countries, like what you see in Taiwan, Japan, Malaysia, and Singapore for that matter.
“But what we are also seeing and I think the evidence is showing is that vaccinated people are less severely affected even when they are infected, and that is good news.”
As more people are vaccinated and if Covid-19 testing systems and vaccination guidelines are in place, SIA will be able to manage a calibrated and safe opening, he said.
“That is why we say that the vaccination rate (that is) picking up (globally) is a good sign,” said Goh.
SIA’s share price rose about 1 per cent to S$4.75 at around 4pm today. — TODAY