Singapore Airlines (SIA) - UOB Kay Hian 2020-03-23: State Support Needed To Fend Off Liquidity Crisis


Singapore Airlines (SIA) - State Support Needed To Fend Off Liquidity Crisis


SIA faces severe liquidity issues amid travel restrictions.

  • Singapore has implemented a 14-day stay home notice (SHN) from 21 March on virtually all outbound travel, and we estimate that this could lead to a 90% y-o-y decline in air travel from late-March to May.
  • On 17 March, Singapore Airlines announced that it will only operate 50% of originally-scheduled capacity till end- April and anticipates further cuts in coming months. See SIA announcements. We thus estimate a S$1b decline in revenue in 4QFY20 and pre-tax operating cash deficit of S$200m-240m in 4QFY20, after factoring in lease and interest payments, but excluding debt payments.
  • We estimate that cash burn is likely to be substantially higher in April and May. Factoring in short-term debt of S$835m as at end-19, Singapore Airlines would be in a precarious position by end-June, if additional liquidity is not made available.

Backstop liquidity of at least S$5b needed by June, to avert a systemic risk across the supply chain.

  • Singapore Airlines’s liquidity woes, which are mainly due to government-imposed travel restrictions, will negatively impact stakeholders, including employees, creditors and suppliers. If Singapore Airlines is given access to short-term funds at attractive rates, then the contagion risk to other stakeholders can be avoided.
  • Even assuming that Singapore Airlines manages to reduce its aircraft capex commitment by 50%, we estimate that the carrier would require at least S$5b in new funding from debt markets or an equity cash call.

SIA’s fuel hedge exposure is another cause for concern.

  • Singapore Airlines has hedged 51% of its FY21 fuel requirements at US$74/bbl on jet fuel and another 22% at US$58/bbl on Brent. The carrier also has hedged 59% of its fuel requirements for another four years. With spot jet fuel trading at US$34/bbl and Brent below US$30/bbl, we estimate Singapore Airlines could incur about S$2.5b in marked to market losses by end-March, which implies a S$2.10/share reduction in book value.

Association of Asia Pacific Airlines (AAPA) expects Asian airlines to face a revenue shortfall of US$60b in 2020 and has proposed the following:

  • Suspending payroll taxes, deferring or reducing income taxes, extending payment terms, waiving ticket taxes and other government levies, taxes, dues and charges for 2020.
  • Direct financial support for reduced revenues and liquidity support due to travel restrictions.
  • Extend interest-free loans or loan guarantees, and support for corporate bond markets either directly or to commercial banks to extend credit for affected companies.
  • Direct financial support for individuals facing loss of livelihoods.


Lack of earnings visibility makes SIA a risky bet, barring explicit state support.

  • If Singapore Airlines receives loan guarantee or low interest loans from the government and waivers on airport charges and levies for a year, it would then reduce the perceived risk on Singapore Airlines. A reduction in airport levies could potentially lead to S$400m savings annually.
  • If Singapore Airlines receives direct support from the Singapore government in terms of loan support, our fair value would rise to S$7.80, valuing the airline business at 0.75x FY21’s book value.


  • We have tweaked our FY20 and FY21b net profit forecasts by S$0.5b and S$0.8b respectively, factoring in weak traffic growth.



  • Government support in the form of low interest loans and other incentives.

K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-03-23
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