TigerAir reports 'surprising loss' from Philippines associate airline sell-off

Its bargaining power is weak, says analyst.

According to CIMB, TigerAir will report a loss of S$13.5m versus its expectations of a gain; this leads CIMB to downgrade its FY14 reported net profit and keep the Reduce call.

Here's more:

Surprising loss from sale

Even though the equity value of TAP has already been written down to zero in TGR’s books, TGR will still record a loss from the transaction as it has agreed to settle all of TAP’s outstanding liabilities amounting to S$22.4m prior to the sale to CEB.

Although TGR only owns 40% of TAP, it will bear all of these liabilities on its own, which suggests that the remaining 60% shareholders are unable/unwilling to bear the burden.

CEB will take over 100% of TAP with a clean slate. Such a lopsided deal in favour of CEB indicates that TGR’s bargaining power was very weak, likely due to the absence of other buyers.

However, TGR can at least stop the red ink in the Philippines and eliminate the need for further cash injections.

Aircraft repositioning

The two A319s leased by TGR and currently used by TAP will return to TGR to be used for routes with lower levels of demand. Three A320s leased by TAP will be novated to TGR, which will take over as the lessee, but they will then be sub-leased to CEB for possibly a few months. Once CEB returns the three A320s, TGR can reallocate them to grow Tigerair Mandala