A silver lining on the way for lessors as Tigerair needs to reorganize?

Dino D'Amore
By Dino D'Amore May 7, 2014 09:27

A silver lining on the way for lessors as Tigerair needs to reorganize?

20 months ago we ran an editorial in the face of industry opinion at the time stating that things did not add-up at Tigerair, but once again it is clear that aircraft orders and capacity leaving demand in its wake always creates the same outcome – losses. The fleet plan does not work and has never looked like it would work, but revenue figures for the group over the past quarter have taken a hit from decision to remove Tigerair Australia revenues from the group results in July 2013 when 60% of the carrier was sold to Virgin Australia. Virgin Australia will take a hit on the purchase but the effective removal of the competition should continue to bolster Virgin Australia’s long-term position.  Even so, Tiger Airways Holdings incurred a loss of S$5.4m (US$ 4.3m) in 4QFY2014 related to its stake in Tigerair Australia with Tigerair Australia  some S$14 million (US$12m) in the red for 4QFY2014 which is more or less flat on FY2013. This is a blow to Virgin Australia which thought it could work some magic on the airline at speed post investment. With the Tigerair Australia fleet still growing(by 2 A320s this year), it is clear that further fleet harmonization needs to take place between Virgin Australia and Tigerair Australia at speed before one drags the other back.

Tiger Airways Holdings saw losses widen in its 4Q ending March 31 2014 to S$96m (US$76m) from S$15m (US$12m) in the same period last year with poor JV performance showing through the books with charges showing that leave one astounded. The group’s operating loss was S$24m (U$19m) in the reporting period compared to an operating profit of S$13m (US$11m) the year before.

On a full year basis, the net loss also widened significantly, from S$45m (US$36m) to S$223m (US$177m), again due mainly to exceptional charges and losses from associates. The group’s operating loss was S$52m (USD41m) in FY2014 compared to an operating profit of S$7m (US$6m) in FY2013.

The Q4 results have sent shares down 8%.

Tigerair Singapore reported an operating loss of S$59m (US$47m) for FY2014 compared to a profit of S$57m (US$46m) in FY2013.

Tiger Airways Holdings sees Tigerair Mandala as the rotten apple and is now looking at divesting the airline out of the group. Although at least there was the foresight to cancel the order for nine A320s in March 2014. Tiger Airways Holdings incurred a loss of S$16.1m (US$12.7m) in the fourth quarter related to its stake in Tigerair Mandala as the Indonesian carrier fell to a loss of S$40m (US$32m) for the full year from a loss of S$24m for FY2013.  The airline is cutting capacity fast in order to turn things around

Mandala now operates only four daily flights and two routes (Jakarta and Bali) from Singapore which in the end overlaps with the Tigerair Singapore services to the same destinations. The group says that it is at a point where it is no longer worthwhile having the Indonesian unit within the group. Divestment at this stage would not yield a great deal for the group and might well create a serious competitor in the process, thus one must question if it is not better to simply to bring a team into the Indonesian unit to redefine the business and redeploy the assets as Indonesia remains strategically important for Tigerair and parent SIA.

Tiger Airways Holdings is now reviewing its investment in Mandala and all eyes are on the possibility of selling the unit to Citilink which is interesting given that Garuda is trying to offload 40% of  that business at this time. This is important as while 40% of Citilink is on the block, who will want to know about Mandala with nine A320s and five of those grounded? The value is in the assets and their sale or re-deployment.
Even the sale in March 2014 of Tigerair Philippines to Cebu Pacific could not lift the full year figures and it is worth remembering that this sale is in the results bolstering up income. This did not happen on the main because Cebu refused to take on the A320s in the Tigerair fleet leaving the five aircraft to be returned to Tigerair Singapore. These aircraft along with the Mandala grounded aircraft are for sub-lease and lessors with cash on the hip could make here by purchasing the aircraft at little comparative cost.

This information then tells us that the newly launched Tigerair Taiwan will not be able to absorb the grounded aircraft from mid-2014. This, if nothing else, tells us that the Tiger Airways Holdings group does not function correctly as the Taiwan operation intends to take aircraft from the Singapore operation to bolster the core capacity and utilization figures of the same – watch out for this smokescreen.
So lessors have a significant role to play in all this. They can offer cash for the aircraft and in the process get a very good deal that will allow them to increase their usual margins or hold the same while offering better incentives to customers. This is the key area of the leasing market to watch for while the sale and leaseback competition continues as lessors able to gain from offering cash for aircraft will indeed be well placed. One such lessor to watch in this arena, as mentioned in 2013, is HKAC.

Meanwhile look out for Jet Asia Airways as it shifts from charter to scheduled operations.  The Thai charter airline is to double its fleet of 767s to 12 later this year with three different variants, raising its 2014 revenue target by 150%. Managing director Chairat Sangchan said the entry of Thai AirAsia X and NokScoot made it imperative for the airline to adopt such changes.

Jet Asia’s current revenue is split 60:40 between full charter and seasonal scheduling and the airline intends to flip those percentages through growth. Up to 250 employees are to be employed; doubling the workforce and the target is to grow revenue to US$250m (8.1 billion baht) from $100 million in 2013. However with competition fierce can this airline really afford to give out hot meals and 23kg baggage allowances without charge? The airline hopes this will create a market segment that keeps it apart from competitors; however in a world of ancillary revenue driving growth one must be skeptical.

Dino D'Amore
By Dino D'Amore May 7, 2014 09:27
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