Singapore Airlines not to go for M&A, Vistara investments to continue

Fundraising primarily to shore up liquidity of the company

In a further indication that Singapore Airlines will not join Tata Sons for the bidding of Air India, the company has said that it is not going to go for any merger & acquisition with the fund it has raised and instead will use it to shore up liquidity of the company. This comes as the process for financial bidding of Air India has started. Tata Sons with whom SIA owns and operates Vistara is one of the frontrunners to acquire the state-owned carrier.

The company however will continue to invest in Vistara and said that the airline’s fleet will grow to 70 by mid of 2023. Vistara currently has 47 planes with a mix of Airbus A320 family and Boeing 787.

“The reason we are proceeding with the Mandatory Convertible Bond programme (MCB) now is that the recovery forecast is still uncertain. It will be prudent for us to bolster our equity base. The other perspective we took in thinking around issuing the MCBs now is a multi-year view. How to build ourselves, what we need to do, what we need to invest in our core capabilities in order to emerge stronger from Covid-19 and take advantage of all the opportunities. There is no mention of use of proceeds for M&A,” Tan Kai Ping, Executive Vice President for Finance and Strategy at Singapore Airlines said.

He was replying to a question on whether the airline intends to use the proceeds from the fund raise to participate in the bidding for Air India.

SIA recently announced to raise $6.2 billion through a convertible bond issue. The offering constitutes the second tranche of its MCB programme, originally approved by shareholders on 30 April 2020, says SIA.

The fund raising follows $13.3 billion of liquidity raised during the FY 2020-21, during which the group suffered a record net loss of S$4.3 billion amid the coronavirus pandemic, which has crushed the aviation and hospitality industry across the world. SIA, which primarily depends on international traffic is impacted further as the Singapore government has been cautious about opening up borders in order to counter the pandemic.

Last month, EY, the transaction advisor for the privatisation process of Air India, issued a request for proposal (RFP) to the shortlisted bidders, asking them to submit financial bids.

The process, said government officials, is expected to be completed by the end of September. However, the second wave of Covid-19 is likely to delay the process as fresh closure of international borders has impacted the due diligence process by bidders.

Experts who keep a track of SIA's business said that while the impact of the pandemic has been severe on the company. In the absence of a domestic market and international travel almost completely suspended, SIA has been forced to ground most of its fleet

The airline recently said that its passenger volume fell by 97.9 percent in the financial year ended March 31 from a year before and it will be able to deploy only 32 per cent of pre-Covid capacity by July.

“The liquidity that we will raise through the MCBs will further strengthen our financial position during these uncertain times, while providing the resources to position the SIA Group for growth and leadership,” said SIA chairman Peter Seah.