Tigerair Mandala announced it will cease operations from 1 Jul-14 as Tiger Airways Holdings (TR), together with key shareholders Saratoga Group and PT Cardig International, decided to cease funding the airline. We view the cessation as a positive for TR in the mid- to long- term, noting that Tigerair Mandala contributed to S$55.5m of losses in TR’s FY14 results.

It also affirms TR’s focus on its turnaround strategy towards an asset-light growth model, which we think is crucial for survival in the current overcapacity situation.

However, in the near term we might see one-off costs to TR from: 1) impairment of the four planes at Tigerair Mandala should they not be re-deployed, sold or leased, 2) shutdown costs such as severance packages and ticket refunds, 3) write-downs in the event Tigerair Mandala is liquidated.

We await more clarity on the possible near term costs associated with Tigerair Mandala. Meanwhile, we maintain our SELL rating and FV estimate of S$0.30.

Source: OCBC Research - 19 Jun 2014