SINGAPORE: Analysts have welcomed the S$750 million of support set aside by the Government for the aviation sector, noting that it will help the industry recover more quickly from the blow dealt to it by COVID-19.
On Thursday (Mar 26), Deputy Prime Minister Heng Swee Keat announced a S$48.4 billion package – up to S$17 billion of which will be drawn from past reserves – to protect jobs and support the economy in the wake of the coronavirus outbreak.
More than S$750 million will go to schemes aimed at supporting Singapore’s aviation sector, which employs more than 190,00 people and contributes more than 5 per cent of the country’s gross domestic product (GDP).
More than S$400 million of that money will go to a jobs scheme, which will see the Government pay up to 75 per cent of the first S$4,600 of a worker’s monthly wages.
The other S$350 million will be for an enhanced aviation support package aimed at providing relief to businesses in the aviation sector. This will help retain a minimum level of air connectivity that is “critical to enable overseas Singaporeans to return home and keep our supply lines for essential goods open”, Mr Heng said.
READ: COVID-19 Resilience Budget: ‘Landmark’ S$48 billion package to tide Singapore through ‘unprecedented’ crisis
READ: COVID-19 Budget: More than S$1 billion for aviation, tourism, other sectors
“With travel demand practically zero, airlines are bleeding,” said International Air Transport Association (IATA) spokesman Albert Tjoeng.
“The measures announced by the government will be a big help and is appreciated by the industry at this dire time when airlines are struggling for survival,” he added.
Mr Heng’s speech also showed that the Government has a “clear understanding of the strategic role that aviation plays in the success of Singapore’s broader economy”, Mr Tjoeng added.
Independent aviation analyst Brendan Sobie said the schemes will help the aviation sector to recover more quickly.
“The job support scheme should enable the SIA Group, Jetstar Asia and other types of companies in Singapore’s aviation industry such as handling companies, catering companies and others, to maintain headcount, ensuring flying can quickly recover to pre-crisis levels when demand returns,” said the former chief analyst for the CAPA – Centre for Aviation.
“This is important as a quick recovery in air transport will help support a quick recovery for tourism and other industries as well as the overall economy.”
However Jochen Wirtz, vice dean of graduate studies at the National University of Singapore Business School, said demand for flights may decline in the future.
More firms may choose to use video conferencing for meetings instead – as they do now because of the COVID-19 pandemic – rather than shell out for business trips, he said.
READ: Singapore aviation industry ‘extremely vulnerable’ to fallout from COVID-19, say experts
“We laud the support measures for the aviation sector – which have been offered, in particular, to airlines, airport and ground handling operators,” said Association of Aerospace Industries Singapore (AAIS) chief executive Sia Kheng Yok, noting that such measures will help maintain Singapore’s capabilities as an air hub.
“Given the strong link and interdependence between aviation and aerospace, we hope that the Government will also consider extending additional support to our sector as well,” he added.
Noting the aerospace industry in Singapore employs about 21,000 people and commands 10 per cent of the global aerospace market, Mr Sia said airlines rely on aerospace companies and maintenance, repair and overhaul (MRO) services to keep their aircraft flying.
“Though the immediate outlook is uncertain, we must ensure that our industry retains its capabilities and talent to provide critical support for the aviation sector once air travel recovers,” he said, adding that AAIS has formed its own COVID-19 taskforce to support the aerospace sector through this crisis.
The facade of Jewel and the control tower of Changi Airport are seen in Singapore, Apr 11, 2019. (File photo: Reuters/Feline Lim)
SINGAPORE AIRLINES NOW IN “STRONG LONG-TERM POSITION”
Airlines have been badly hit following the imposition of travel restrictions by numerous countries to stem the spread of the pandemic, with IATA projecting US$252 billion in lost revenues as a result.
National carrier Singapore Airlines (SIA) is among the many companies that have suffered, having cut 96 per cent of its capacity and grounded 138 planes from its fleet of 147.
Budget carrier Scoot, which is under the Singapore Airlines Group, has also suspended flights to 49 destinations and grounded 47 of its 49 aeroplanes.
After having requested a halt to trading on Thursday (Mar 26), SIA announced plans to raise up to S$15 billion from existing investors through the sale of shares and convertible bonds.
The effort is underwritten by the airline’s biggest investor, Temasek Holdings, which owns about 55 per cent of the group.
“This amount of money they’re raising is staggering. It’s a lot,” said Professor Wirtz, who has co-authored two books on SIA.
Noting that the SIA Group recorded revenue of S$16.3 billion in the last financial year, he suggested that the national carrier aim to not just survive the current crisis but come out stronger.
READ: Commentary: COVID-19, the biggest crisis ever for Singapore’s aviation industry and Singapore Airlines
READ: Singapore Airlines taps investors for up to US$10.5b amid coronavirus shock
“Following the Government support package and Temasek equity announcements, the SIA Group is now in a very strong long-term position relative to the overall Asian airline industry,” said Mr Sobie.
While other countries may be pressured to offer similar packages for their airlines, not all governments or government-linked investment firms would be able to offer such a level of support, he added.
SIA may be able to take advantage of opportunities that arise from this crisis by acquiring other airlines or accelerating expansion in Singapore, or both, he said.
“Singapore could emerge as an even stronger hub over the long term, helping justify the massive investments in additional capacity at Changi,” he noted.
However, Shukor Yusof, the founder of aviation consultancy Endau Analytics, suggested the amount SIA hopes to raise means it may be expecting a long-term downturn.
“The amount to be raised is impressive at first glance but it reinforces the gravity of the situation and the length of time SIA may have to endure before the market stabilises,” he said.
Mr Sobie said it is difficult to gauge how long the current crisis will last for the aviation sector.
“While there may be a partial recovery in the second half of this year, it could be a year or even longer before there is a full recovery,” he said.
“However, SIA is now in a very enviable position to be able to wait until the international market recovers, whenever that is.”
More Stories
Active Inquiry in Organizational Change
How Management Consulting Can Profit Your Business Firm
Eight Skills of Highly Successful Consultants