SIA may exhaust $8.8b debt proceeds before market recovers: analyst

As of August, the carrier has already utilised $4.4b of the proceeds.

Singapore Airlines (SIA) could potentially exhaust its $8.8b in rights and convertible debt proceeds by end-March 2021, warns UOB Kay Hian in a report, unless it manages to defer a large part of its $2b in advance payment for flights.

In the report, UOB Kay Hian analyst K Ajith noted that Singapore’s aviation sector could begin to recover by Q1 2021 even before demand for leisure travel returns, on the back of the sector’s expected role in vaccine distribution across APAC. SATS, ST Engineering, and SIA are listed as potential beneficiaries of vaccine development and distribution across the regio.

However, for SIA, the losses may greatly offset the gains by the time the vaccine rolls out.

“Whilst SIA would theoretically be the most direct beneficiary of vaccine development, its financial position could possibly be severely weakened prior to a global distribution of vaccines,” said UOB Kay Hian analyst K Ajith.

As of August, the carrier has already utilised $4.4b of the proceeds with $2.9b used for debt repayment and S$1.1b for ticket refunds and settlement of fuel hedging contracts

Furthermore, SIA has $5.5b in current trade-related liabilities—including $2b in advance bookings—and S$1.6b in derivative liabilities as at March this year.

Even assuming the derivative liabilities diminish in value, UOB Kay Hian estimates that the carrier would have at least a further $6b in payables by end-March 21.

SIA also had $2.7b in short-term debt as at end-FY2020 although it is believed this has been fully repaid as of August.

From an operating perspective, the carrier is estimated would be burning $200m to $300m per quarter inclusive of lease payments for Q2 to Q3 2021.