As the aviation industry suffers utmost pressure amid the COVID-19 crisis, airlines around the world are desperately looking for help, especially financially, to ensure short-term payments and, ultimately, future operations.
It seems, though, that there’s a lucky airline that is now able to be more certain about its future after an immense credit injection is said to not only maintain the Singapore’s flag-carrier Singapore Airlines (SIA) alive, but also to secure a prosperous growth after the virus is contained.
The funding, which amounts to a total of S$19 billion is constituted as follows: the state-fund and major shareholder “Temasek Holdings” will offer shareholders new shares (S$5.3b) and will issue mandatory convertible bonds (S$9.7b) for a total of S$15 billion. Parallelly, a S$4 billion bridge loan has been secured with the DBS Bank to tackle the current and near due payments (payment of existing debts and operational charges).
Temasek, owner of more than the half of the company, has also pledged the intention to take any remaining subscriptions, meaning the benevolent conditions of such cashflow – which does not negatively affect current shareholders – clears the path for an optimal recovery and subsequent growth of the luxury air-brand.
Consequently, the airline can now focus on the long-term without recurring to non-effective and destabilizing measures in the short-term (i.e. aircraft sales or leasebacks)
This move ratifies the confidence that local institutions pose on the viability of the airline, with the premise that global demand for air travel gets back to pre-crisis existing levels.
It should be mentioned how essential aviation sector is for the city-state’s economy: 12% of the GDP results from it while employing over 375,000 people. The group, including SilkAir and Scoot, comprise a large proportion of such figures.
In this regard, Temasek Intl. Chief Executive said that “This transaction will position it (SIA) for growth beyond pandemic” while stressing on “the delivery of a new-generation aircrafts over the next few years” which “will provide better fuel efficiencies as well as meet its expansion strategy”.
Alongside, the Singaporean Finance Minister Heng Swee Keat expressed full support in the commitment to keep the airline running, and insisted on “preserving the status of our air hub so that it can emerge stronger from the crisis”.
But, is the industry expecting similar financial benefits elsewhere? The answer seems clear. Not even airlines in the United States can count on such financial stimulus, even if $50 billion expected (agreed by the Trump administration) to be divided among various airlines that independently can be much bigger than SIA itself. Also, airlines around the globe do not really expect to keep pre-crisis demand levels and therefore foresee a significant reduction of their size (e.g. Air New Zealand & Southwest).
SIA has cut its capacity by 96% till end-April, as governments around the world tighten foreign transit. As a result, 185 out of 196 planes from the entire group (SIA, SilkAir and Scoot) are grounded. In the meantime, the company is also undertaking salary cuts, as well as capital expenditure and operating costs reduction measures.