• Approval for TATA SIA JV likely delayed
• Four grounded freighters lower costs and still seeking buyers
• Maintain HOLD

Approval for TATA SIA JV likely delayed

We attended the 3QFY14 post-results briefing for Singapore Airlines (SIA) and here are our key takeaways. Management is optimistic the TATA SIA JV will be given approval soon. However, it is likely to be later than its last guidance of mid-2014. In a similar story of aviation JV in India, AirAsia’s JV with Tata was expected to be operational by Dec-13 after initial approval by the Indian government's foreign investment regulator in Mar-13. But until now, it is still awaiting final clearance with Directorate General of Civil Aviation (DGCA), India's aviation regulator. Another regulatory uncertainty is whether the rule for airlines to have a 20 aircraft fleet and five years of domestic operations before being allowed to fly internationally will be lifted. This will decide how fast the JV, if licensed, will be able to tap on the growing Indian market for international flights on top of domestic ones. We see it as a strategic alliance to break into India’s growing market, noting that as of 2013, SIA only has less than 4% market share of India’s international flights according to CAPAS.

Four grounded freighters lower costs and still seeking buyers

The reversal of losses at SIA Cargo (SIAC) in 3QFY14 was due to lower operating costs through grounding of four freighters (in place since Jun-13), and to a lesser extent, the peak cargo traffic period. The cargo yield was relatively flat at 33.4 S-cents/ltk (-0.3% YoY) while unit cost dropped substantially to 21.7 S-cents/ltk (-6.87% YoY). Additionally, management revealed that buyers have not been found for the four grounded freighter aircrafts. This will not have any material impact going forward as impairment cost of S$293m was already booked in 1QFY14.

Maintain HOLD

Until there is more visibility on material developments, we maintain our HOLD call with fair value of S$9.50 using P/B less net cash model.

Source: OCBC Research - 10 Feb 2014