It won' t say if or when the dilutive extra bonds will be issued or how long its current liquidity will last

 

SINGAPORE Airlines (SIA) has yet to make a decision on whether to issue an additional S$6.2 billion worth of mandatory convertible bonds (MCBs).

 

Neither could it say how long the carrier' s current liquidity would last.

 

In an earnings call on Monday, the flag carrier' s key executives told the media and analysts that SIA is exploring additional means, including sale-and-leaseback for some of its aircraft, and further tapping the debt capital market to raise liquidity.

 

It has, however, not decided whether to issue another S$6.2 billion worth of the dilutive MCBs, the audience was told during the hour-long earnings call. The airline has until the next annual general meeting in July 2021 to come to a decision.

 

As at Oct 13, SIA had used S$6.2 billion of the S$8.8 billion raised from the rights issue in June.

 

Chief executive officer Goh Choon Phong said that " the market is very dynamic" as the coronavirus testing regime could be further improved and this could stimulate travel demand.

 

However, he noted that there could also be a resurgence of infection in some countries, which could dampen demand. Hence, he could not say when the carrier' s current liquidity would be depleted, given how changes in the market affect its cash flows.

 

Further, SIA has managed to reduce the monthly cash burn rate from S$350 million in the period May to July, to below S$300 million now. It also has credit lines of S$1.7 billion to tap.

 

Director of Asia transport research at UOB Kay Hian, K Ajith, told The Business Times that he believes SIA will proceed with the issuance of additional MCBs.

 

He noted SIA' s current liabilities stood at S$6.85 billion as at end-September and its operating cash burn rate was S$255 million to S$300 million. Further, the Jobs Support Scheme that has largely defrayed SIA' s labour cost will cease in March 2021.

 

There is no certainty when travel demand will return, yet there is the need for SIA to maintain a going concern status.

 

Citi analyst Kaseedit Choonnawat holds the view that there is now a lower chance of SIA having to tap the MCB issuance.

 

He said SIA had approximately S$7.06 billion in cash as at end-September against a negative free cash flow of S$3.6 billion from April to September.

 

Mr Choonnawat said: " We see reduced further dilution risks from SIA calling for the second tranche of convertible bond, as cash burn should gradually narrow with operational improvements and capex (capital expenditure) delays."

 

SIA has concluded negotiations with Airbus to defer delivery of some planes while talks with Boeing are under way. It declined to say whether it has axed some orders or what its revised capex is.

 

Meanwhile, it has been active in opening new revenue streams, including offering the A380 dining experience and behind-the-scenes tours of its training facilities. It is still premature to gauge how much these will contribute to its financials, commented Mr Goh.

 

SIA took an impairment charge of S$1.33 billion on the retirement of 26 surplus aircraft including seven A380s, following a network review. It expects there will not be any aircraft impairment in the near future.

 

The non-cash charge was the largest non-operating item that contributed to SIA reporting a record net loss of S$3.47 billion for the first half of FY2021 to September. It managed, however, to narrow its operating loss for the second quarter to S$826.1 million from S$1.04 billion the preceding three months.