News
Singapore’s Tigerair exists Australia for a dollar
November 1st 2014
On the face of it, it is the airline bargain of a life time. Last month, Virgin Australia CEO, John Borghetti, dug into the corporate change purse and exchanged A$1 (US$ 0.88) for the 40% of Tigerair Australia Virgin Australia Holdings (VAH) did not already own. Read More »
In its sale statement, Tigerair said the branding and website distribution arrangements with Tigerair Australia will continue and the Group will retain franchise revenues.
“Taking into account impairment of shareholder loans and having made provisions for share of potential losses from the disposal of Tigerair Australia’s future aircraft deliveries, the Group has recorded a $47 million charge in relation to this planned divestment,” a statement from the airline said.
Virgin Australia bought 60% of Tigerair Australia for US$32 million 14 months ago. As part of the deal, Virgin Australia will collect Tigerair Australia brand rights for a number of regional destinations which will enable it to compete better with Qantas’ budget subsidiary, JetStar. Tigerair Australia has a fleet of 13 A320s and flies to 12 Australian destinations.
“This proposed transaction marks an important milestone for Tigerair Australia and forms part of Virgin Australia Group’s Virgin Vision Strategy to 2017,” said Borghetti. “The joint venture has strengthened systems and processes, increased aircraft utilization, established a Brisbane base and leveraged synergies across a range of areas.
“However, given the ongoing subdued consumer demand in the Australia domestic market, the growth of the Tigerair Australia domestic fleet is likely to be reduced. 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.”
Singapore Airlines (SIA), the ultimate owner of 40% Tigerair Australia holding, retreated post haste to Lion City after the deal was negotiated, where work on resurrecting Tigerair Singapore from its loss-making streak has begun in earnest.
SIA will inject as much as $110 million into the carrier by converting some securities into shares and by buying additional stock in a rights offering. The purchase will ultimately increase its holding in Tigerair Singapore to 71%. The share sale date has not been set, but the offer is expected to be completed by next January.
The new funding was announced after the LCC reported its net losses had widened to $143.5 million in its second quarter, ended September 30, compared with a $18.7 million profit in the same period a year ago.
Established in 2004 and operating to more than 50 destinations across Asia-Pacific, Tigerair has been badly effected by intense competition in the regional low-cost sector as its rivals increase capacity, particularly in Southeast Asia. The carrier’s share price has tumbled by 40% this year.
As part of its turnaround, Tigerair ended partnerships in Indonesia and the Philippines and subleased 12 A320s to successful Indian LCC, IndiGo. Tigerair group chief executive, Lee Lik Hsin, said the airline had resolved its excess capacity issues with the sublease arrangements.
“We are heartened by SIA’s support for the rights Issue. We are working closely with Scoot (SIA’s long-haul low-cost subsidiary), and look forward to collaboration with the rest of the SIA Group,” he said.
All parties to the proposed sale expect to have it completed, at the latest, by next January, after it has been reviewed by Australian regulatory authorities.
