SIA cost cuts continue as S$15b from cash call must 'last as long as possible'

Singapore

WITH no certainty as to when the Covid-19 outbreak will abate, Singapore Airlines (SIA) will continue to press ahead with cutting spend, even after announcing a S$15 billion cash call last week.

Employees will be allowed to take on temporary positions outside the group, however, as it implements previously announced measures such as salary cuts and compulsory no pay leave for staff, according to a note to employees from its chief executive officer.

In the note seen by The Business Times, chief executive Goh Choon Phong told staff that while the S$15 billion in funding has provided SIA with "a critical lifeline", the airline isn't out of the woods yet.

Late Thursday night, the airline group announced it would raise S$5.3 billion via a rights issue and S$3.5 billion through 10-year mandatory convertible bonds (MCB); in addition, it will be seeking shareholder approval to further issue up to another S$6.2 billion in additional MCBs to be offered to shareholders in time to come.

SIA's largest shareholder Temasek Holdings is underwriting both issuances, effectively throwing its weight behind the flag carrier. In the meantime, the SIA group has also arranged for a S$4 billion bridging loan facility with DBS Bank to fulfil its immediate liquidity needs.

Around the world, airlines have had their operations paralysed by unprecedented border closures, resulting in travel coming to a virtual standstill.

Singapore's flag carrier will continue to operate just 4 per cent of its original capacity for the "foreseeable future" while only 10 planes out of its 200-strong group-wide fleet will be operational. As a result, there will be a sizeable number of surplus crew members and ground staff.

Faced with negligible revenue while continuing to incur expenses from costs such as salaries, SIA will still face "very significant negative cashflow every month", even as the government's recently announced multi-billion-dollar support package delivers some relief.

Mr Goh wrote: "With no visibility on when the global outbreak will be brought under control, we must be prepared for a long and harsh Covid-19 induced winter. As a result, we must ensure that the S$15 billion is used judiciously to last for as long as possible while we await market recovery."

As such, SIA will continue to defer non-essential expenditure as well as press on with pay cuts and compulsory no-pay leave.

It was previously announced the airline's senior management is taking salary cuts, with Mr Goh himself taking a 30 per cent reduction from April. BT reported previously that pilots, executives and associates will take varying days of compulsory nopay leave (CNPL), while staff on re-employment contracts will be furloughed; other employees are being offered voluntary no-pay leave as an option.

While not being placed on CNPL, the monthly salary for cabin crew will fall by as much as 60-70 per cent owing to the massive cuts to flight operations, BT understands. Their monthly wages include both a salary and a variable component linked to flying hours.

SIA's human resources department will introduce measures to facilitate those staff members who want to volunteer their time with the government's efforts to fight the Covid-19 outbreak; however, they will still be employed by SIA and retain benefits, including medical benefits. Staff will return to the airline at the end of the deployment period, the note said.

Employees are also being given the option of temporary placements outside the group.

With staff salaries being reduced, the airline has been working with the three local banks to provide support schemes for those who need them, including support with income tax and mortgage payments.

In the note, Mr Goh also highlighted that he is certain SIA "would be first off the blocks" when the upturn comes, thanks to its nimbleness and its staff's commitment to the airline group.

Shares in SIA closed at S$5.80 on Monday, down 28 cents or about 4.6 per cent.