Singapore Airlines sets aside $2.3 Billion for new aircraft payments

Singapore Airlines made a big splash raising nearly $13 billion over the last few months to shore itself against the aviation crisis. Now the carrier is planning to spend $6.2 billion, putting $2.3 billion towards aircraft purchases.

Singapore Airlines was one of the harder hit carriers by the aviation crisis. As it relied significantly on through traffic and Singapore closed its borders to transit passengers, overnight, the airline lost 96% of its business.

Unlike other airlines, there is no domestic market in the city-state of Singapore for the airline to rely on. In a statement, SIA stated this drop in traffic was “the greatest challenge that the SIA Group has faced in its existence. The Group’s airlines become more vulnerable when international markets increasingly restrict the free movement of people or ban air travel altogether. It is unclear when the SIA Group can begin to resume normal services”.

The airline took drastic action to prevent financial troubles by securing financing of around $13 billion, with an initial $6 billion to be raised in the near future. These funds are not a loan from the government but instead are borrowed against equity and bonds, putting the airline in a strong position.

Unlike winning the lottery, Singapore won’t be gleefully splitting up and giving away chunks of its newfound money. Instead, it has carefully analyzed what areas of the business need the money the most and set out to spend accordingly.

According to FlightGlobal, Singapore has so far planned to raise $6.2 billion in the short term and spend it the following way.

$2.3 billion will be used for aircraft purchases.
$2.6 billion will be used for operating cash flow for the rest of the year
$1.27 billion will be used to pay off some of its existing debts and other outgoings.

Some losers that did not receive any budget were one of its asset airlines Virgin Australia (Singapore owned 20% of the airline), which went into voluntary administration this month.

A surprising move by the airline is actually going ahead with airline purchases during this time. The carrier is expecting around 18 new aircraft in the next year, including:

7 Airbus A320neos, 5 Airbus A350s
9 Boeing 787s, 4 Boeing 737 MAXs that have yet to be recertified (but are still planned)

Because of the way that aircraft orders work, the carrier doesn’t have to pay until the aircraft are delivered. This is why we see many airlines delay the delivery of aircraft or cancel orders. But not Singapore, who considers this time to be a moment for growth. The airline stated,

“The rationale for these [aircraft] purchases remains valid even under the present scenario given that it would enable SIA to proceed with its adoption of new-generation aircraft, both as a replacement for existing fleet and for growth, as these new-generation aircraft will not only provide an enhanced travel experience to our customers but also, provide better operating efficiency and lower emissions.

“This will also provide us with the resources to capitalize on any opportunities that may arise following the abatement of the Covid-19 pandemic from a position of strength, and position us for growth as soon as the ongoing crisis resolves.”