A Tiger Airways passenger waits at the counter of the airline at Sydney’s domestic airport. Cash-rich Singapore Airlines is injecting up to $110mn to take control of loss-making affiliate Tiger Airways.
Cash-rich Singapore Airlines (SIA) is injecting up to $110mn to take control of loss-making affiliate Tiger Airways, shoring up the budget carrier while scrapping its regional ambitions as competition rages.
Announcing a record quarterly loss that sent its shares tumbling as much as 10%, Tiger said yesterday that SIA will raise its stake to about 55% from 40% by converting existing securities into shares.
Tiger then plans an up to S$234mn ($184mn) rights issue, with SIA buying up to S$140mn of new shares and possibly raising its stake to as much as 71%.
The low-cost airline also agreed to sell its remaining 40% 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 will 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,” Lee Lik Hsin, Tiger’s chief executive told reporters in a conference call. Lik Hsin, a 20-year veteran of SIA and a board member of Tiger, became the CEO 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,” said Derrick Heng, analyst at Maybank-KimEng, referring to Tiger. “Are they going to stay as a standalone unit just in Singapore? That will put them at a disadvantage to other players like AirAsia, which is growing across the whole region.”
Tiger plunged into a net loss of S$182.4mn for the three months ending September, largely due to a charge for the sub-lease of surplus aircraft, from a profit of S$23.8mn a year ago.