Source: Bloomberg News Author: Chan Sue Ling 02/20/2009
Subject Concerned: Aircraft Opinion Airlines Human Resource
Singapore Airlines Ltd., the world's largest carrier by market value, may postpone deliveries of new aircraft for the first time in five years as the global recession hurts travel demand.
"They may have no choice but to delay deliveries," said Ryu Je-Hyun, a Hong Kong-based analyst at Mirae Asset Securities Co. "If they ground planes, they still have to pay depreciation costs and if they take delivery, they have to pay the remaining cost for the aircraft."
Chief Executive Officer Chew Choon Seng will take out 17 percent of the airline's fleet starting in April on sinking travel demand that's pushed British Airways Plc and Japan Airlines Corp. to losses. Singapore Air, first to fly the Airbus SAS A380, will cut capacity 11 percent after profit in the quarter ended in December fell the most in at least five years.
Airlines worldwide are taking planes out of service, deferring deliveries of new aircraft and eliminating jobs to lower costs as travel demand crumbles. Singapore Air has 51 planes on order or lease from Airbus and another 21 from Boeing Co., according to its Web site.
"We have not yet deferred any aircraft deliveries, but are examining options to do so," said Stephen Forshaw, a Singapore Air spokesman. "Our deliveries of new aircraft are not just about growth, but also to adhere to our long-standing policy of fleet renewal."
The airline last deferred aircraft deliveries between 2003 and 2004, when it postponed the arrival of Airbus A340-500s for "a brief period", Forshaw said.
Declining Traffic
Asia-Pacific passenger traffic sank 9.7 percent in December, while freight volumes tumbled 26 percent, the International Air Transport Association (IATA) said on Jan. 29. The traffic declines for both passengers and freight were the biggest of any region, the trade group added. The industry may lose as much US$2.5 billion this year, with carriers in the Asia-Pacific region accounting for almost half of the deficit, according to the IATA.
Kingfisher Airlines Ltd., owned by India's biggest brewer, this month deferred its first delivery of the A380 to 2014 from 2012. China Eastern Airlines Corp., the nation's third-largest carrier, said it may cancel orders for as many as 15 planes.
Air France-KLM Group, Europe's largest carrier, said on Feb. 19 that it may delay deliveries of one or two of the A380s it has ordered. The carrier said on Feb. 16 that it's postponing deliveries of six Airbus and Boeing planes to reduce spending.
Planes in Desert
"Things are certainly looking bad now and delaying orders is an option Singapore Air may take," said Jim Eckes, managing director of industry adviser Indoswiss Aviation. "Carriers worldwide are already sending signals to the manufacturers that they won't take deliveries for the next two to three years."
The number of planes removed from service has more than doubled in the 12 months to Jan. 31, a more drastic shift than after the Sep. 11, 2001, terrorist attacks or the outbreak of severe acute respiratory syndrome (SARS) in 2003, according to data compiled by Bloomberg. Planes taken out of service are typically parked in deserts for storage.
"Singapore Air will still take delivery of fuel-efficient planes such as the A380," said Rohan Suppiah, an analyst at Kim Eng Securities Co. "They may push back some of the A330s."
Singapore Air this year took delivery of the first of 19 A330-300 aircraft, with another three due to arrive before the end of March. The plane can carry as many as 335 people and costs US$201 million at list prices, according the Airbus Web site.
"Last Resort"
The carrier said on Feb. 16 that it will take planes out of service and will consider job cuts only "as a last resort". It is in talks with labor unions on measures to reduce costs, including voluntary leave without pay, early retirement and shorter work months. Last week, it posted a 43 percent drop in net income.
Singapore Air declined 1.2 percent to close at S$10.02 in Singapore trading. The stock dropped 35 percent last year, the biggest annual slide since 2001. The benchmark Straits Times Index was down 2.1 percent on Feb. 20.
Airlines worldwide are more likely now to defer deliveries of new aircraft than three months ago as demand for air travel slumps, a Jan. 20 survey by UBS AG said. Almost a third of the respondents said they were more likely to postpone the delivery of planes on order, compared with 8 percent three months ago.