SIA posts record H1 loss of S$3.47b on impairments for older aircraft, ineffective fuel hedges

Singapore

SINGAPORE Airlines' (SIA) net loss in the second quarter to September doubled that of the earlier three months, as it reported a record net loss of S$3.47 billion for the first half of FY2021.

The national carrier reported a loss of S$1.12 billion for the first quarter to June. With H1 loss coming in at S$3.47 billion, it means SIA bled S$2.34 billion in the second quarter - twice the loss in Q1.

The Q2 loss came on the back of impairments for older aircraft and acquisition goodwill, as well as a S$41.7 million retrenchment cost.

The H1 net loss was a reversal from a S$205.6 million profit for April to September last year, before it was blindsided by the novel coronavirus pandemic.

Revenue was down 80.4 per cent at S$1.63 billion for the first half of FY 2021, compared to S$8.33 billion in the preceding year. The group carried 155,000 passengers in the six months to September, under 1 per cent of the volume of 19.1 million a year ago. Passenger traffic in terms of revenue passenger-kilometres dropped 98.9 per cent year on year.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The plunge was cushioned by cargo takings improvement as SIA maximised freighter utilisation and deployed passenger planes on cargo missions to meet greater demand as global supply chains were being restored.

The hit from the pandemic has not only resulted in a steep decline in revenue, but has also led the group to book an impairment of S$1.33 billion on the carrying values of older generation aircraft, said the carrier in its financial results released on Friday after trading hours.

After reviewing its longer-term network, SIA has retired 26 older planes in surplus. Further, it has concluded negotiations with Airbus to defer delivery of some planes while talks with Boeing are under way.

Besides the aircraft impairment, SIA has also fully written down the goodwill of S$170.4 million that was recorded when it took control of Tiger Airways in October 2014 in a "prudent" move considering the impact of the pandemic on business conditions.

As fuel prices and consumption remain low and not expected to improve soon, SIA recognised mark-to-market losses of S$563 million on ineffective fuel hedges in H1. It has paused fuel hedging since March.

Net asset value per share stood at S$5.14 as at Sept 30, versus S$7.86 as at March 31. It has skipped an interim dividend "in view of the significant loss incurred and the need to conserve cash".

SIA, which has already spent S$6.2 billion of the S$8.8 billion raised from rights issue as at Oct 13, is exploring other means including aircraft sale-and-leaseback and taking on more debts to shore up its liquidity.

On the outlook, the carrier said industry airfreight capacity is anticipated to remain constrained because of lower bellyhold capacity arising from fewer passenger flights. This is expected to keep cargo yields and load factors "high" in the coming months.

It expects to see a progressive recovery in general cargo demand, and continued strong demand from pharmaceuticals and perishables. Cargo demand is also expected to get a boost from the big e-commerce sale days and new product launches.

Hence, it will continue to grow the group's capacity to meet demand and expand the cargo network by deploying passenger aircraft on dedicated cargo operations.

SIA shares closed one cent higher at S$3.48 on Friday, before the financial results were released.