Debt threat: SIA could scrounge up money to fund capex

Cashflow could only cover less than half of its $17b commitments.

Singapore Airlines (SIA) braces for more challenges ahead amidst gloomy global environment, but the biggest is one of liquidity, said UOB KayHian.

"SIA has S$17b of capex commitments over the next four years. This will mandate debt funding or increased sale-and-leasebacks, given the tight widebodied aircraft resale market,"it said.

The research house estimates that operating cash flow will fund less than 50% of capex over the next three years and it expects SIA to go from net cash into net debt position. The estimated amount excludes future investment in some of its airline associates.

"The resale market for wide-bodied aircraft is practically tight and thus SIA would either have to take on more debt to fund its capex or opt for higher sale and leasebacks. The latter would however affect profitability," it said.

UOBKayHian assumed that SIA will require S$2.8b and S$2.1b of debt funding in FY18 and FY19 respectively. It has also reduced its dividend payout assumptions to 50% (including special dividend from disposal) and lower total dividend by 8% to 25 S cents.

"Under such a scenario, we question the need for aggressive share purchases,"it said.