Bizness Lounge

Singapore Air to Raise Stake in Tiger After Losses Widen

By Kyunghee Park 

Singapore Airlines Ltd. (SIA) will raise its stake in low-fare carrier Tiger Airways Holdings Ltd. (TGR) to make it a subsidiary, providing financial support to the unprofitable company after losses reached a record.
Singapore Air will hold about 55 percent of Tiger Air by converting some securities into shares and then buy as much as S$140 million ($110 million) of additional stock in a rights offering, the two airlines said in statements today. Singapore Air holds 40 percent of the low-fare carrier.
Tiger Air shares plunged to a record low after the carrier today also reported its biggest loss. Tiger Air took a charge of S$161 million in the second quarter arising from the sale of its entire stake in a venture with Virgin Australia Holdings Ltd. (VAH) for A$1. The budget carrier had earlier this year ended partnerships in the Philippines and Indonesia and leased out
some aircraft to an Indian airline as competition among a dozen budget airlines in the region takes its toll.
“Singapore Air is rescuing Tiger Air,” said K. Ajith, a Singapore-based analyst at UOB Kay Hian Pte. “With the conversion of securities and rights offering, there will be less risk to the balance sheet. I don’t foresee Tiger Air needing more funds after this.”

Photographer: Munshi Ahmed/Bloomberg

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Tiger Air plans raise as much as S$234 million by selling 1.2 billion new shares at a price of 20 cents apiece in the rights offering. That is a 38 percent discount to yesterday’s close of 32.5 cents.

Shares Plunge

The no-frills airline plunged as much as 11 percent to 29 Singapore cents as of 9:06 a.m. in Singapore. The stock has tumbled 40 percent this year. Singapore Air, Asia’s third-biggest airline by market value, was unchanged at S$9.65.
The restructuring is symptomatic of the challenges budget airlines face in South and Southeast Asia, where most carriers are unable to take advantage of rising traffic because of low fares and capital expenditure to buy new aircraft.
While the Asia-Pacific region remains the most promising for travel growth, with a third of Airbus Group NV and Boeing Co. orders, a five-year jet-buying frenzy may give way to a more sober approach as carriers adjust to the challenges of intense competition and inadequate infrastructure.
Economic growth in the region has enabled more people to fly for the first time, prompting budget carriers to start and order hundreds of aircraft. Singapore Air itself has set up two budget airlines - Tiger Air and Scoot Pte. Low-fare airlines account for more than 50 percent of seats in the city.

Shareholder Approval

The budget carrier will seek approval from shareholders at an extraordinary meeting to decide on the share sale date. Tiger Air and expects to complete the offering in January 2015 and Singapore Air’s stake can rise to as much as 71 percent after the offer ends, according to the statement.
“We are heartened by SIA’s support in this rights issue,” Tiger Air’s Chief Executive Officer Lee Lik Hsin said in the statement. “We have resolved our excess capacity issues and we also stemmed further losses from overseas venture.”
Singapore Air won’t make a general offer for other shareholders because Tiger Air’s minority shareholders waived their rights to receive such offer arising the securities conversion, Tiger Air said.
Tiger Air posted a loss of S$182.4 million in the quarter ended in September from a profit of S$23.8 million a year ago, after setting aside provisions on aircraft it agreed to sublease to IndiGo earlier this month. Revenue dropped 10 percent to S$146.7 million.