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Saturday, December 15, 2012

Singapore Air Rises After Virgin Sale: Singapore Mover By David Fickling

Singapore Air Rises After Virgin Sale: Singapore Mover
By David Fickling - Dec 12, 2012 6:51 PM GMT+0800

Singapore Airlines Ltd. (SIA) rose to the highest in almost three months on the city’s stock exchange after agreeing to sell its stake in Virgin Atlantic to Delta Air Lines Inc. (DAL)

Delta will buy the 49 percent shareholding for $360 million, according to a stock exchange filling late yesterday. Singapore Air will book an S$322 million ($264 million) gain from the sale, after accounting for a writedown in its investment in the U.K. carrier controlled by billionaire Richard Branson.

Singapore Air is exiting Virgin after more than a decade as it sharpens its focus on faster-growing Asia-Pacific markets. The carrier has ordered 54 Boeing Co. (BA) 737 planes to double the size of regional unit SilkAir and bought a stake in Virgin Australia Holdings Ltd. (VAH), that nation’s second-largest carrier.

“We are positive on the deal as it helps unlock the hidden value from a long-held asset,” Morgan Stanley analysts Edward Xu and Chin Ser Lee said in a note to investors. The Virgin investment has “yielded limited returns and synergies.”

Singapore Air, which already has more than S$4 billion of cash in hand, may use the sale proceeds for a special dividend, share buyback or investment in other carriers, the analysts said. It could also use the funds as buffer against capital spending plans totaling about S$6.75 billion, they said.

The airline rose 1.1 percent to close at S$10.87, the highest since Sept. 21. The benchmark Straits Times Index gained 0.8 percent.

‘Not Performed’

Singapore Air bought the stake for S$1.65 billion, Germaine Shen, a spokeswoman, said by e-mail.

The investment “has not performed to expectations,” the carrier said yesterday. “The synergies the parties originally hoped for have not materialized.”

The airline expects to maintain commercial ties with Virgin, such as codeshares and frequent-flier tie-ups.

Delta, based in Atlanta, is buying the Virgin stake to increase its presence on lucrative trans-Atlantic routes. The two carriers intend to begin a joint venture on 31 daily round- trip flights between North America and the U.K. taking advantage of Virgin’s base at London’s Heathrow airport, Europe’s busiest.

Singapore Airlines puts focus on Asia after selling Virgin Atlantic stake

December 13, 2012
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Singapore Airlines' sale of its 49-per cent stake in Virgin Atlantic will allow the cash-rich Asian carrier to focus resources on its fast-growing regional market, analysts said Wednesday.

The Singapore carrier's tie-up with British billionaire Richard Branson's Virgin Atlantic never really took off since the alliance began 12 years ago when the stake was bought for 600 million pounds ($A918 million).

Singapore Airlines (SIA) on Tuesday said it will sell the stake to Delta Air Lines of the United States for $US360 million ($A341 million) in cash in a deal to be completed next year.

SIA said it "had been evaluating strategic options for the stake for some time, as the investment has not performed to expectations and the synergies the parties originally hoped for have not materialised."

Analysts said SIA, consistently one of the world's most profitable airlines, had little say in how Virgin Atlantic was run by the flamboyant Branson, and the sale allows it to exit an underperforming investment in the troubled European market.

"SIA can now focus on investments in the Asia Pacific region," Brendan Sobie, a Singapore-based analyst with industry consultancy Centre for Aviation, said.

Sobie said it made more sense for Delta to have a strategic stake in Virgin Atlantic as there are more synergies in their trans-Atlantic network.

Jason Hughes, an analyst with IG Markets Singapore, said that despite the higher acquisition price paid by SIA, the $US360 million "will go down as a profit, as losses had already been accounted for in previous years".

Malaysian bank CIMB said in a note that the sale would give SIA a "short-term boost" but urged investors to focus on the long-term challenges posed by Middle Eastern carriers and budget airlines.

Shukor Yusof, an aviation analyst with Standard & Poor's Equity Research, said SIA can use the extra cash to "redefine its business strategy on top of beefing up its regional subsidiaries".

"It's also good to exit out of Europe because the market conditions there are quite atrocious," he said.

Shukor said conflicting management styles with Branson was one of the chief reasons why the alliance failed to prosper beyond a code-sharing agreement.

"Branson remained the controlling shareholder and he called the shots," he said.

Virgin Atlantic also did not have enough slots at London's high-traffic Heathrow airport for SIA to latch on in its bid to gain a share of the lucrative trans-Atlantic route to New York, Shukor added.

Analysts said SIA's decision to buy the stake in Virgin Atlantic in March 2000 was a good move at the time because Asia was just emerging from the 1997-1998 financial crisis.

But the centre of global economic power has since shifted to Asia, sparking a travel boom in the region.

Passenger traffic in the Asia Pacific is forecast to account for 33 percent of the global market in 2016, up from 29 percent in 2011, according to trade body International Air Transport Association (IATA).

"This makes the region the largest regional market for air transport, ahead of North America and Europe which each represent 21 percent," IATA said in a statement on their latest industry forecast.

SIA has been investing both in the premium travel segment, where it faces competition from Middle East carriers, and in the low-cost market where it is challenged by budget airlines.

SIA in June launched a long-haul budget wing called Scoot while maintaining a substantial stake in low-fare carrier Tiger Airways. It also operates a regional wing, SilkAir.

SIA and Scoot in October announced orders for 45 Airbus and Boeing aircraft. The orders came after SilkAir in August said it would buy 54 new Boeing planes with an option to buy a further 14 aircraft.


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