Singapore Airlines grounds majority of its fleet as COVID-19 presents “great challenge”

Singapore Airlines is going to slash capacity by 96%, ground almost all of its fleet and search to raise funds, the carrier stated on Monday. They said this is in response to travel restrictions due to coronavirus which the company called the “greatest challenge” it had ever faced.

The move has surfaced at the same time when global travel hub Singapore shut down borders to travelers and transiting passengers in a bid to curb the spread of the virus. 

Shares going Down

Shares of the airline which are majority-owned by Temasek, a Singapore state investor, went down by over 9% by 0350 GMT, surpassing losses in the broader market.STI decreased by 7% and as per the data, this is its biggest daily drop since October 2008.

The airline industry worldwide is searching state bail-outs to ingest the shock from the coronavirus crisis, as widespread travel restrictions have forced many to ground fleets and order thousands of workers on unpaid leave to survive.

“This will result in the grounding of around 138 SIA and SilkAir aircraft, out of a total fleet of 147, amid the greatest challenge the SIA Group has faced,” Singapore Airlines said.

The company has drawn on its credit lines in the last few days to fulfill immediate cash flow needs and talking with financial institutions over future funding requirements, it added.

“It’s important to have access to liquidity, to pay leases, to pay employees and to be able to continue to function. This is a positive, but the cost of funding remains uncertain,” said K. Ajith, an analyst at UOB Kay Hian.

In a report issued on Monday before the declaration, UOB Kay Hian had said the carrier required “backstop liquidity” of at least S$5 billion ($3.43 billion) by June. It encounters S$2.5 billion of marked-to-market losses by the end of March from having taken out fuel hedges at high prices, according to the broker.

Focusing on protecting jobs

Low-cost carrier Scoot is also going to suspend most of its network, resulting in the grounding of 47 of its fleet of 49 aircraft, Singapore Airlines said.

“It is unclear when the SIA Group can begin to resume normal services, given the uncertainty as to when the stringent border controls will be lifted,” the airline said.

The slashes are in sync with those made by Hong Kong-based rival Cathay Pacific Airways Ltd. (0293.HK), which cut passenger capacity by 96% in April and May.

Singapore Airlines stated it was looking to bolster liquidity and lower expenses by asking aircraft makers to defer deliveries and performing salary cuts for management, among other steps.

The airline’s cash balance of S$1.57 billion by the end of December 2019 was about 19% up than a year earlier.

The airline is going to aim at protecting jobs, Chief Executive Goh Choon Phong said. The group had over 26,500 employees in the financial year that ended in March 2019. The company is in talks with the unions to discuss further cost-cutting measures.

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