Singapore Airlines

Seems like the risk guys in charge did not understand sound risk management, they applied kiasu overcooked risk management

Sensibly, fuel should hedged in forward period no longer than extreme case of 3 or 4 quarters as passengers rarely book flight more than one year in advance, they are basically hedging for own speculative trading hmm

Probably there was still “discount “ on premium if the lock in period was longer ....

Probably the whole value chain of management had approved the approach ...


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5 years hedging, akin to gambling? :O

SYDNEY: Virgin Australia Holdings is poised to enter voluntary administration, local media reported on Monday (Apr 20), with the cash-strapped airline unable to weather the coronavirus crisis because of its A$5 billion (US$3.2 billion) of debt.

Australia's second-biggest carrier, which has about 10,000 employees, last week suspended trading in its shares to continue talks on financial aid and restructuring alternatives. 

It had requested a loan of A$1.4 billion from the government and entered debt-restructuring talks with creditors.

[SOURCE]: CNA: Virgin Australia preparing to enter voluntary administration: Report

Based on SQ AR as at 31 March 2019, the Group had entered into longer dated Brent hedges with maturities extending to FY2024/25 that cover up to 46%* of the Group’s projected annual fuel consumption, at average prices ranging from USD58 to USD63 per barrel.
Sensitivity
Decrease in one USD per barrel results in (110.7) million 31 Mar 2018 on Group Equity
Decrease in one USD per barrel results in (141.2) million 31 Mar 2019 on Group Equity
Decrease in one USD per barrel results in (xxx)@  million 31 Mar 2020 on Group Equity

@ to announce on 14 May 2020 after trading hour
For valuebuddies whom wanted to have a estimation of what's the exposure, take a look at page 28 of 3Q as at 30 Jan 2020.
(click for details - pg 28)

23 Mar 2020 08:45am SGX announcement is a usual operation update. 
(click for trading update)
... over the last few days, the SIA Group has drawn on its lines of credits to meet its immediate cash flow requirements. 
The SIA Group is engaging in discussions with several financial institutions for its future funding requirements.
The Company continues to explore measures to shore up its liquidity during this unprecedented disruption to global air travel. 
The Company will release further details when such measures have been firmed up. 

26 Mar 2020 at 8:14am (before trading hour) halted. at 11:59PM made the rights and MCB announcement in SGX
(click to read the rights and MCB)

31 Mar 2020  MTM due to FY closing

15 Apr 2020 Trading Update - unprecedented. Instead of usual operation update, it's actually contains a trading update.
(click for details)
... the scale of the flight cuts means that the SIA Group is now in an over-hedged
position with respect to fuel consumption. Surplus hedges will need to be marked to
market as at 31 March 2020#, a date on which the Brent oil price was close to its 10-year
low, and are expected to generate substantial losses.

14 May 2020 AR for FY closing on 31 Mar 2020

---

and there goes Virgin Australia

https://www.theguardian.com/business/202...ng-airline

Just a quick point on the Brent Hedges. The forward curve is very steeply upward sloping. In case anyone thinks that it means a MTM of the hedges out to 2025 at the much publicised spot level, that's not right. That also means that the longer the prices stay at these levels, the more the hedges will continue to bleed.

And just FYI on the big news overnight

https://www.marketwatch.com/story/why-th...2020-04-20

https://www.cnbc.com/2020/04/20/oil-mark...CuMVe_3X1c

West Texas Intermediate crude for May delivery fell more than 100% to settle at negative -$37.63 per barrel, meaning producers would pay traders to take the oil off their hands.

The only buyers of oil futures for that contract are entities that want to physically take the delivery like a refinery or an airline. But demand has dropped and storage tanks are filled, so they don’t need it.
“There is still a lot of crude on the water right now that is going to refineries that do not need it,”

Producers pays $37.63 to buyers to take/store oil.... :O :O :O

If they were hedging according to their "projected needs", I don't think SIA Mgt were gambling per say like SCM's FOREX scandal about 13-14 years ago. The only difference is that their real needs may drastically change now due to a black swan event called Covid-19.

When everyone is rar-rar about the future - The success of Jewel Changi, Tokyo 2020 Olympics, the completion of T4 and the announcements for T5 etc - it is not easy for any dissenting pessimism. One could jolly well imagine what could have transpired in the executive meeting if the hedging guy presented his conservative 2 year hedging plan and only to get questioned by the boss (normally the alpha male is the CEO and everyone else nods with a smile on the face) why shouldn't we get more aggressive since times are rollin' good.

It would be good to judge a decision from the decision making process rather than the end result. In an alternate reality, SIA would be rollin' big profits if a ME war broke out or a re-elected Trump closed the lid on Iran.

@brattzz
I don't think airlines can take physical delivery of crude oil. Their only functional usage is kerosene, which is produced after refined. So the only takers are refineries or each country's stratgic reserve. Just for the joke, the better deal for locals might be to try to smuggle cheap R95 petrol from Malaysia at ~40cents/liter and store it up somewhere.

I think that SIA got too greedy, took a 5 year gamble hedge ($74+/barrel?), simply bcos, it's an unnecessary long position/risk,
When JetFuel prices are sky-high, airline carriers imposed surcharges to passengers to cover the fuel costs....

now this 5b hedge is margin called... i believe the CEO has take responisbility for this if it's a PTE company..

Just like Hin Leong too! :O fraud, jail, do not go pass,...

(20-04-2020, 12:12 PM)cif5000 Wrote: Hedging 51% wasn't the shocker. 

Hedging up 20 quarters forward is!! In AR19, the sensitivity was $141.2m for every dollar change in oil price. This number had steadily increased over the last 10 years. It used to be that hedging was 15 months forward and sensitivity was less than $10m.

May I know where to find the 20 quarters fwd hedging information ? I am unable to find.

Thanks in advance !