[top photo: Singapore Airlines CEO Chew Choon Seng.]
By Nisha Ramchandani
SINGAPORE Airlines (SIA) chief executive Chew Choon Seng yesterday defended the airline's proposal to divest its 81 per cent stake in subsidiary Singapore Airport Terminal Services (SATS).
The move will unlock shareholder value, give shareholders a direct interest in SATS without them having to put their hands in their pockets, and allow the airline to concentrate on its core business, he said.
Speaking to reporters on the sidelines of an analysts' briefing, Mr Chew said: "Now is an appropriate time for us to unlock the shareholder value and let the shareholders have direct ownership of a profitable and independently listed subsidiary. Also, SATS shareholders have been asking for more liquidity of the shares."
Under SIA's proposal, its stake in SATS will be divested in specie, with up to 730 SATS shares be distributed for every 1,000 SIA shares held, pending shareholder approval at an extraordinary general meeting.
This will allow SATS to pursue its own opportunities, Mr Chew said. And SIA will be able to concentrate more on its airline and aircraft maintenance, repair and overhaul businesses.
SIA Engineering Company (SIAEC), is "strategically more important . . . to the operational integrity and reliability of our flying operations," Mr Chew said during the briefing in response to a question on whether SIAEC will be divested.
Financially, the SATS divestment will have no significant impact on equity, SIA said, and its gearing ratio will fall from 12 per cent to 11 per cent.
"This is something SIA should have done a long time ago," said Kim Eng analyst Gregory Yap, adding that the divestment will improve SATS's trading liquidity.
And while SATS will lose a parent in SIA, it will gain a grandparent in Temasek, he pointed out.
Also yesterday, Mr Chew debunked the idea that SIA will revive discussions to invest in China Eastern in the near term.
"Although longer-term, we still maintain an interest in having the opportunity to participate in the airline business in China; the immediate situation that we have before us, our hands are quite full," he said.
Meanwhile, SIA will take delivery of five Airbus 380s in the coming months as planned. Two of these will arrive this month. But Mr Chew said that the airline is in talks with Airbus about deliveries further down the line.
"Dialogue is still open and ongoing," he said.
SIA will also take delivery of seven A330-300s in the current fiscal year.
"We want to continue with our policy of fleet renewal," Mr Chew said. "Our strategies are long-term."
With slumping travel demand having prompted plans to slash capacity 11 per cent in FY 2009-10, SIA will ground 13 aircraft this financial year.
It is also in talks with interested parties about selling some of these aircraft.
"There is interest, but this is not a time where it is easy for people who are interested to raise finance," Mr Chew said. But still, SIA will work sale leads.
Additionally, three Boeing 747-400s will be returned to lessors, leaving SIA with an operating fleet of 99 at March 31, 2010, versus 103 at April 1 this year.
The reduction in capacity will reduce SIA's fuel expenses in FY 2009-10. About 25 per cent of the group's fuel requirement for the current financial year is hedged, at prices of US$125-130 (S$185-192) per barrel.
Separately yesterday, SIA released operating figures for April. Passenger carriage, in revenue passenger kilometres, declined 17.7 per cent year on year, outstripping a reduction in capacity, in available seat km, of 12.9 per cent.
The passenger load factor dipped 4.2 percentage points to 72.2 per cent, while the number of passengers carried dropped 18.2 per cent to 1.29 million.
Overall cargo traffic, in freight tonne km, fell 21.6 per cent in April, outpacing a 16.5 per cent reduction in capacity.
As a result, the overall load factor for SIA Cargo dipped 3.7 percentage points to 58 per cent.
SIA shares peaked at $12.26 yesterday, before closing unchanged at $11.60. SATS closed at $1.48, down seven cents.
This article was first published in The Business Times.