Cash-rich Singapore Airlines Ltd (SIA) is injecting up to US$110 million to take control of loss-making affiliate Tiger Airways Ltd, shoring up the budget carrier while scrapping its regional ambitions as competition rages.
Announcing a record quarterly loss that sent its shares tumbling by as much as 10 percent, Tiger on Friday said that SIA plans to raise its stake to about 55 percent from 40 percent by converting existing securities into shares.
Tiger then plans an up to S$234 million (US$184 million) rights issue, with SIA buying up to S$140 million of new shares and possibly raising its stake to as much as 71 percent.
The low-cost airline also agreed to sell its remaining 40 percent stake in its Australian unit to Virgin Australia Holdings for just A$1.
Months after it shut down its Indonesian venture and sold its Philippine business, the sale clips Tiger’s wings back to those of a Singapore-focused carrier, but leaves questions on how it might secure growth.
“We need to now stem the losses arising from this joint venture and divert our resources back towards our Singapore-based airline in the execution of the turnaround plan,” Tiger chief executive Lee Lik Hsin (李立興) told reporters in a conference call.
Lee, a 20-year veteran of SIA and a board member of Tiger, became the chief executive officer of Tiger in May, in a sign that its largest shareholder would wield greater influence.
Analysts said the shrinking of Tiger’s operations meant that it had to carve out a new growth strategy.
Low-cost regional rivals AirAsia Bhd and Lion Air have ordered hundreds of planes and expanded aggressively over the past few years.
“They need to address a strategy going forward because they have divested Australia, they are out of Indonesia, out of Philippines, so what next now?” Maybank Kim Eng Securities Ltd analyst Derrick Heng said referring to Tiger.
Tiger plunged into a net loss of S$182.4 million for the three months ending September, largely due to a charge for the sub-lease of surplus aircraft, from a profit of S$23.8 million a year ago.
Tiger’s shares on Thursday fell as much as 10 percent to a record low of S$0.29 before recovering to S$0.31, down 5 percent on the day and nearly 40 percent so far this year.
In Australia, loss-making budget airline Virgin Australia signaled its plan to cut a bloated Tiger Australia fleet that has hobbled its own turnaround efforts.
Virgin bought its original 60 percent stake from Tiger for A$35 million(US$30.6 million) just 14 months ago.
Australia’s domestic aviation market has been under intense pressure as local carriers, including Qantas Airways Ltd, engaged in a bitter price war just as demand fell amid a faltering economy.
Virgin Australia chief executive officer John Borghetti said the acquisition would allow it to fly to a number of new short-haul international destinations, providing growth opportunities for the business, while accelerating Tigerair’s drive for profitability.
“Given the ongoing subdued consumer demand in the Australian domestic market, the growth of the Tigerair Australia domestic fleet is likely to be reduced,” he said. “Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group.”
Additional reporting by AFP
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