Singapore Airlines

[CY09]

Hi davidoh,

Its because the gulf airlines have the backing of their state to compete against SIA. SIA is positioned as a premium airline serving the slightly more wealthy customers- Their tickets are slightly more expensive but they attempt to differentiate themselves through quality service.

However in the late 2000s till now, the gulf states decided to make themselves aviation hubs to the world and along with it the need to create their own flagship airlines. Unlike Singapore-SIA, the Gulf-Emirates-Qatar had an advantage, their fuel cost is much lower compared to SIA and they did not have to worry about P&L. So Qatar Airways took the mass market route connecting Asia to Europe through cheap flights, while Emirates did the same but also provided premium quality flights which infringed into Singapore-SIA target audience. Furthermore being new to the game, they were able to begin their airlines with rather new modern fleet. In Emirates case, they ordered a tremendous amount of Airbus A380 which boosted first class/business class product which rivals SIA. In the first class product segment, Emirates is already better than SIA in both the Boeing 777 and Airbus A380 planes. Qatar's new business class product has similar review rating to SIA's business class product.

As a result, SIA had to to compete with gulf airlines by lowering its margins but not service as as well as modernising the fleet; resulting in an delivery order of about US$18 billion over the next 10 years. Unlike the US airlines, SIA does not have a domestic airlines route to protect itself. Its current "domestic routes" are serving the Indonesian and Malaysian cities which are getting challenged by budget airlines

That said, SIA is still able to churn profits unlike other airlines who make losses due to extremely good direction. This was down to good management. However the luck of decision by a great management can never always be "right", in recent times, the wrong hedging of fuel will cause a massive cash outflow. Worsened by the need to pay for Boeing and Airbus deliveries with little revenue or cash inflow, it points to a potential cash crunch

With revenue coming in, SIA could have still held on but revenue is now gone due to the virus, an equity issue has to be raised to supplement the quarterly 4 billion loss in revenue which translates to cashflow. With a 15 billion injection in equity, it acts as the substitute to revenue lost. However if this virus fear still lingers as it is now until mid 2021, SIA will need another cash raising.

[cif5000]

1) all goes well and the MCBs gets redeemed after a few years,
2) all does not go well the airline goes belly up within the ten year period and you are holding onto unsecured debt
3) the airline survives and trundles along but never to reach back above $4.84 and you get mandatory converted to shares. For example, if shares were trading at $2.42 in ten years time, every $1 of your MCB will be worth $1 * 1.75351 * $2.42 / $4.84 = $0.876755.

At Maturity Date the conversion is 1.806.11.

Even if the share price were to trade above $4.84, SIA may not want to fork out cash to redeem the MCB before maturity. 
The MCB are treated as equity to begin with. 
The potential overhang from conversion will create an artificial ceiling price.

I give a very low probability to the MCBs getting redeemed.

[davidoh]

Hi davidoh,

Its because the gulf airlines have the backing of their state to compete against SIA. SIA is positioned as a premium airline serving the slightly more wealthy customers- Their tickets are slightly more expensive but they attempt to differentiate themselves through quality service.

However in the late 2000s till now, the gulf states decided to make themselves aviation hubs to the world and along with it the need to create their own flagship airlines. Unlike Singapore-SIA, the Gulf-Emirates-Qatar had an advantage, their fuel cost is much lower compared to SIA and they did not have to worry about P&L. So Qatar Airways took the mass market route connecting Asia to Europe through cheap flights, while Emirates did the same but also provided premium quality flights which infringed into Singapore-SIA target audience. Furthermore being new to the game, they were able to begin their airlines with rather new modern fleet. In Emirates case, they ordered a tremendous amount of Airbus A380 which boosted first class/business class product which rivals SIA. In the first class product segment, Emirates is already better than SIA in both the Boeing 777 and Airbus A380 planes. Qatar's new business class product has similar review rating to SIA's business class product.

As a result, SIA had to to compete with gulf airlines by lowering its margins but not service as as well as modernising the fleet; resulting in an delivery order of about US$18 billion over the next 10 years. Unlike the US airlines, SIA does not have a domestic airlines route to protect itself. Its current "domestic routes" are serving the Indonesian and Malaysian cities which are getting challenged by budget airlines

That said, SIA is still able to churn profits unlike other airlines who make losses due to extremely good direction. This was down to good management. However the luck of decision by a great management can never always be "right", in recent times, the wrong hedging of fuel will cause a massive cash outflow. Worsened by the need to pay for Boeing and Airbus deliveries with little revenue or cash inflow, it points to a potential cash crunch

With revenue coming in, SIA could have still held on but revenue is now gone due to the virus, an equity issue has to be raised to supplement the quarterly 4 billion loss in revenue which translates to cashflow. With a 15 billion injection in equity, it acts as the substitute to revenue lost. However if this virus fear still lingers as it is now until mid 2021, SIA will need another cash raising.

Thank you for providing the other side of information. 

Strangely, as of today, there are a wide-spectrum of argument whether to pick the rights issue or not.

It is difficult to see how SIA can go forward to claim their former glory even with Temasek's support.

It is an expensive exercise for the man in the street if they fear dilution and the current economic deterioration. It would be expensive especially with 3 rights shares for 2 existing shares.

That meant if you have 2000 existing SIA shares, you have to fork out $9000 for the 3000 rights. 

For those who buy regularly as a "saving plan" may even have more and suppose if they have 4000 existing SIA shares they would need to be out of pocket of $18000 for 6000 rights. 

It is a lot of money for the average family and the fact that no one is sure if SIA would head towards NOL destiny or become a penny stock eventually. The latter is unthinkable and unlikely. The airline industry profits are often razor thin hovering between 5-10%.

Hence, would there be an expected a flood of excess rights that is not taken up?

Then for those who have existing SIA shares and are able to afford to buy the right, should they subscribe to the right issues and excess if allowed OR should they NOT subscribe and buy when the rights are traded in the market?


It is extremely sad that SIA had to come to this stage. It does remind me though not identical, past greats like Kodak, Sony, JVC and etc. 


Hope some experts here can be generous enough to share their opinion. 


Thank you very much for providing a platform which is very much revered by many.

[opmi]

Probably in the future, only SQ and PRC Airlines flying the skies....just kidding...

Surely air tickets prices will be more expensive...

[donmihaihai]

Probably in the future, only SQ and PRC Airlines flying the skies....just kidding...

Surely air tickets prices will be more expensive...

Depend very much on whether countries allow their national airlines to go down. Tickets will be cheaper when lot of planes flying whether make money or not.

[brattzz]

national carrier is a sovereign right issue... especially SIA.... temasek has already pump in 15b and ready to pump in more, national service is compulsory already...

As a retail investor, i won't buy SIA at all! :O :O :O

[¯|_(ツ)_/¯]

13 Apr 2020 SIA Renoucneable rights - Receipt of approval-in-principles from SGX

(click for details)

Further to the Company’s announcement on 26 March 2020 (the “Announcement”) relating to, among

others, the Rights Issue, the Directors wish to announce the Company had on 11 April 2020 received
the approval in-principle from the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for
the listing of and quotation for:
(a) up to 1,777,692,486 Rights Shares, up to S$3,496,128,555 in aggregate principal amount of
Rights MCBs and up to 1,304,626,600 new Shares to be issued pursuant to the conversion of
the Rights MCBs (“Rights MCB Conversion Shares”); and
(b) such further Rights MCB Conversion Shares to be issued pursuant to any adjustments made
to the conversion price of the Rights MCBs (the “Conversion Price”), as set out in the terms
and conditions of the Rights MCBs (“Adjustment Rights MCB Conversion Shares”)

[Shiyi]

This SIA saga gave me a dejavu feeling.

It reminded me of Noble.

It was doing nicely with many stockbrokerage analyst giving BUYs signal with accompanying favorable target price.

I bought a sizeable number of Noble stock since it was one the stocks that Bloomberg report on their TV program sing about the company and their attractive dividend yield.

I figured out, how can I a simpleton without any investment knowledge and without any "insider information very much unlike the stock analysts, be of any better than them and so I believed in their analysis and bought.

Not to long later, a damning report came out from short seller. Denial flew to and fro.

I began to feel something fishy because the CEO do something "funny" which I can't remember. Something about paying their senior management exorbitant remunerations.

SGX and the authorities did not put them on any watchlist as such when these were going on.

Then from no where after some meeting with the investors, asking retail investors to trust them, they came out with rights issue.

I was caught in a dilemma. If don't buy the rights - it is dilution but if buy will I be throwing good money after bad.

Then sometime later, all hell broke loose. Now it is delisted and the stock is placed somewhere where it is not tradeable.

I keep asking myself, because I notice our authorities keep pledging in the newspaper after Lehman saga, they had been very aggressive and I wondered what went wrong. Surely the combine lost a lot from retail investors must runs into millions. Knowing the company is in bad shaped on hindsight, why did the authorities allow them do go ahead with the rights issue.

Then it happened to Hyflux.

A National Asset was also not spared when simpleton like who think that NOL a National Asset and is partly or largely owned by our Temasek or GLC. Those who bought early and held till it got delisted, lost much money.

Now SIA seems to be moving towards that direction. I am vested and I bought along the way down to average. Now after doing due diligence I am every more worried. With their aggressive fuel hedging up to 5 or 6 years ahead at very high price when compared today's price of oil per barrel, it was estimated that their lost on oil hedging alone would amount to $2.5 billion dollars. Their current cap is about $7.5 billion. SIA can only make money or breakeven when they are open for business but as long as they are not it is burning cash everyday and in huge amounts.

This complicated rights issue and MCB is really in my humble opinion, make investors who have faith in them paying for the mistakes of the few senior management who called for the fuel hedging. There is no accountability as such which meant that these same individuals would still be managing the company moving ahead from here. Does this worry anybody?

Like some say, SIA glorious days are over. Today SIA is just another good or above average airline. It is not that SIA does not have any standard it is because her competitors have caught up and racing past her.

Thinking back sometime ago, when SIA was in trouble, they thought they had the magic bullet and brought Pillay back on board but that nothing of significant materialized.

I am very afraid that SIA may end up tragically like Noble.

I am also worried about Keppel Corp and Singtel.

There appears to be trend among these MNCs.


Just sharing and hope nobody is as silly as me making all these mistakes and washing my laundry in public.


Thank you.

[Shiyi]

Singapore has moved from merit-based to discloure-based regime for some 20 years.
The onus is on the buyer, in this case shareholder, be it in IPO or rights issue.
I would have preferred the old system as caveat emptor works against minorty shareholders.

As of SIA, I believe it won't go the way Noble did. Just look at Olam. It survived the short-seller attack
while Noble caved in. The key difference is that SIA as well as Olam have the support of Temasek.

[davidoh]

May I humbly seek your assistance and confirmation?

SIA Rights issue

1. SGX approve SIA Rights Issue - when would the exercise that place?

2. Every 2 ordinary shares given 3 Rights.

3. 1 Right Issue cost $3.00 to convert to Ordinary shares

4. Would it be financially insane to acquire EXCESS right issue?

5. Every 100 ordinary shares given 295 MCBs.

6. 1 MCB cost $1.00

7. MCB

Is this bundled to the Rights Issue?
Is there option not to take up MCB but take up ONLY the Rights issue?
Is it financially not sound to pick up the MCB at $1 per MCB?

8. MCB

1 MCB conversion to ordinary share cost $4.84 after 10 years
Within the 10 years can we trade the MCB?
Does it mean that the actual cost of 1 MCB conversion to ordinary share is $1 + $4.84 = $5.84?

9. Within 15 months - further issue of $6.2billion of addition MCB
Wouldn't this affect the earlier MCB issued on its value (trade ability)at a future date since we do not know the terms of this future MCB?

Thank you very much.