Connect with us

Business

Analysts: Singapore aviation sector “extremely vulnerable” due to COVID-19

Published

5 years ago

on

According to analysts, Singapore as an aviation hub is becoming “extremely vulnerable” as the number of countries imposing travel restrictions increases in order to contain the COVID-19 spread.

Smaller carriers are also not spared during this time as they may also shut down due to demand shortage, analysts noted.

On Wednesday (18 March), Singaporeans were advised to immediately defer all travel abroad to avoid importing more cases into the country. The number of infected cases have reached more than 200,000 with more than 8,000 deaths reported globally, whereas Singapore has 313 confirmed cases.

With the restrictions in place, the airline industry is affected as many airlines are suspending flights.

Singapore Airlines (SIA) announced that it would cut its capacity by 50 per cent due to increased travel restrictions and to curb the pandemic spread. “Given the growing scale of the border controls globally and its deepening impact on air travel, SIA expects to make further cuts to its capacity,” the airline noted.

Also, the entire fleet of 320 aircraft and 18 Airbus will also be grounded by Singapore-based Jetstar Asia as all flights get suspended for at least three weeks from 23 March until 15 April. “Jetstar Asia is containing the impact as much as possible by asking senior leadership to take salary cuts and the rest of the teams to take paid and unpaid leave during this time, in addition to cancelling annual bonuses and the Annual Wage Supplement,” a Jetstar Asia spokesperson remarked.

The International Air Transport Association (IATA) cautioned in early March that the outbreak could devastate passenger airlines up to US$113 billion (S$162.7 billion) in revenue lost in 2020.

In February, passenger movements dropped 32.8 per cent year-on-year, as reported by Changi Airport. Asia Managing Director for industry publication Flight Global, Greg Waldron pointed out that “the demand has basically collapsed…I think people are fearful of the virus,  but also all the different country closures, the quarantines – all these different things just mean that the market for air travel has pretty much vanished overnight.”

Aviation analyst and founder of consulting firm Endau Analytics, Shukor Yusof told Channel News Asia, “Singapore is extremely vulnerable as it is a financial centre and an aviation hub…It will immediately have a knock-on impact on the hospitality sector, and likelihood of job losses if this is prolonged.”

Mr Waldron believed that suspension of flights is the right move by airlines. “Basically, I think the airlines need to do everything possible to minimise their costs at this time. It’s not a question of making profits anymore,” he hinted.

Although SIA announced a 50 per cent cut in capacity, Brendan Sobie, the founder of Sobie Aviation, believes that “much deeper cuts” may be coming in the next few days.

Mr Sobia noted that Singapore does not have a domestic flight market to rely on, compared to a country like China, which is showing recovery signs due to its recovering domestic aviation market.

Like JetStar Asia, airlines can opt to cease their operations completely until the situation improves, but those airlines may risk losing flight slots, Mr Shukor remarked.

SMALLER CARRIERS AT HIGHER RISK

According to the report by CAPA Centre for Aviation, the impact of travel restrictions could mean bankruptcy for “most world airlines” by the end of May 2020.

There is need for coordinated industry and government action in order to avert such a catastrophe, CAPA added.

CAPA’s estimate is “rather optimistic”, as Mr Shukor opined because many airlines may not survive beyond end-May.

Terence Fan, a transport economist at Singapore Management University, noted that government funding and money availability will mean that different airlines would be impacted differently.

“But in the absence of any actions, I think we may see some of the smaller carriers being forced into some sort of liquidation administration in a few months time,” he added.

He went on to suggest that regional governments may want to maintain a national airline so that financial support will be provided. “The question is what extent they’re going to keep propping up (the airlines),” and that governments may provide less financial support than before, he asserted.

The local maintenance, repair, and overhaul (MRO) will suffer a decline too due to the fall in flight demand, Assistant Professor Fan pointed out.

Additionally, Mr Waldron said that even when airlines receive financial bailouts due to their high-profile status, many other sectors impacted by COVID-19 are also competing for government support.

“If you look at it from the government’s perspective, it’s not only the airlines that are having trouble right now…The hotel industry is having trouble. The restaurant industry is having trouble. Pretty much anybody who does anything is having a difficult time,” Mr Waldron added.

Meanwhile, Deputy Prime Minister Heng Swee Keat announced a S$112 million package in his budget speech in February in order to help the country’s aviation sector weather the COVID-19 outbreak.

Although larger airlines will survive this period, costs may still incurred such as cost-reducing measures and layoffs, Mr Waldron remarked.

Compared to budget carriers which do not have cargos services, SIA and other full-service airlines also run cargo services, so they can still earn revenue, Mr Sobie pointed out. So, budget carriers have a disadvantage and may have begun struggling early on before the outbreak occurred, he added.

Even so, governments may still provide support for the aviation industry. Mr Waldron said, “I think one thing that could bode well for the airlines (hoping to) receive a bailout is that governments could view them as a strategic asset for economic growth, which they are…You could argue that airlines have a very important role to play in the recovery of the economy. I’m sure that airlines will make that case.”

Related Topics:
Continue Reading
Click to comment
Subscribe
Notify of
0 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments

Business

GIC reportedly explores options for its 50% stake in India’s Greenko, worth US$5B

Singapore’s GIC is exploring a potential sale of its 50% stake in India’s Greenko Energy, valued at approximately US$5 billion, reported Bloomberg.

Published

3 days ago

on

9 October 2024

By

Singapore’s sovereign wealth fund, GIC, is considering a possible sale of its 50% stake in India’s Greenko Energy, a move that could be valued at approximately US$5 billion.

According to sources cited by Bloomberg, the Singaporean entity has engaged financial advisers to explore options, including a full or partial divestment. Discussions are in the preliminary stages, and a final decision on the sale has yet to be made.

A potential deal would place the valuation of Greenko, a major player in India’s renewable energy sector, at about US$10 billion.

Greenko’s portfolio includes 7.5 gigawatts of installed capacity across wind, solar, and hydropower assets distributed across 15 Indian states. GIC’s involvement with Greenko has been substantial, holding a significant influence on the company’s strategic direction.

Potential buyers and market positioning

Prospective investors for GIC’s stake include other sovereign wealth funds, infrastructure-focused investment funds, and energy companies. Sources have indicated that considerations remain preliminary, and GIC could opt against proceeding with a sale.

Apart from GIC, Greenko’s other significant backers include the Abu Dhabi Investment Authority (ADIA) and Japanese financial group Orix. Greenko has been seeking opportunities to raise additional capital to support its growth trajectory, potentially through new investment rounds in the coming months.

The company, however, dismissed reports of GIC’s intended stake sale as inaccurate without providing further details.

Financial outlook and recent challenges

In March 2024, Fitch Ratings revised its outlook on Greenko Energy Holdings’ Long-Term Issuer Default Rating (IDR) from Stable to Negative, affirming the IDR at ‘BB’.

The revision reflects concerns regarding Greenko’s EBITDA net interest coverage, expected to fall below 1.5x by the end of the financial year 2025 before recovering in 2026. This shift is attributed to Greenko’s planned acquisition of a 60.08% stake in the 1,200-megawatt Teesta III hydro project in Sikkim, alongside additional capital expenditures for a new 1.5-gigawatt solar power plant.

The Teesta III acquisition involves substantial restoration efforts due to damage caused by flash floods in October 2023.

Greenko’s management anticipates funding part of the acquisition costs through shareholder equity inflows and insurance compensation for the flood damages. However, Fitch’s assessment includes a conservative 50% reduction in the estimated insurance proceeds and a projected six-month delay in restoration.

GIC’s strategic role in Greenko

GIC, which holds four seats on Greenko’s 13-member board, has been instrumental in shaping the company’s strategic direction.

The sovereign wealth fund’s involvement extends to oversight of Greenko’s investment plans, operational strategy, and risk management. GIC has contributed significantly to Greenko’s recent capital requirements, including a US$700 million investment in 2023 to support the development of Greenko’s pumped storage projects.

Beyond this, Greenko’s ambitious investment plans, such as the acquisition of the Teesta III project, are backed by shareholder commitments amounting to approximately US$1.4 billion over the period from 2024 to 2027. This figure represents around 25% of the projected investment costs and underscores the substantial equity support that GIC and other stakeholders have provided.

Market context and outlook

The potential sale of GIC’s stake in Greenko comes at a time of growing investor interest in renewable energy assets in India.

The country has been rapidly expanding its renewable energy capacity as part of its climate commitments and energy transition strategy.

Greenko, with its diverse asset base and experience in renewable energy development, represents a significant opportunity for investors seeking exposure to this sector.

However, the challenges faced by Greenko, particularly the financial strain from the Teesta III acquisition and related capital expenditures, present risks to potential investors.

The recent downgrade in its credit outlook by Fitch Ratings reflects these pressures, even as Greenko continues to explore opportunities to secure additional funding to support its growth.

A spokesperson for GIC declined to comment on the potential sale, while Greenko refuted reports regarding the matter without elaboration.

Continue Reading

Business

OpenAI to open second Asian office in Singapore

OpenAI will open its second Asian office in Singapore in 2024, following its first office in Tokyo established earlier this year. This fourth international branch aims to enhance regional collaboration and partner with local initiatives, including AI Singapore, focusing on generative AI models that reflect Southeast Asia’s diverse cultures and languages.

Published

3 days ago

on

9 October 2024

By

SINGAPORE:  OpenAI, the San Francisco-based leader in generative artificial intelligence (AI), has revealed plans to open its second Asian office in Singapore later in 2024.

This will mark the company’s fourth international branch, focusing on enhancing regional collaboration and partnering with local initiatives, such as the national AI programme, AI Singapore.

This expansion comes on the heels of OpenAI securing billions of dollars in funding and credit, leading to a valuation of $157 billion, bolstered by support from SoftBank Group Corp., a prominent AI investor.

Earlier this year, the US startup established its first Asian office in Tokyo, where it introduced a bespoke GPT-4 model specifically designed for Japanese-language customers.

CEO Sam Altman expressed excitement about the move, stating, “Singapore, with its rich history of technology leadership, has emerged as a leader in AI, recognising its potential to solve some of society’s hardest problems and advance economic prosperity. ”

“We’re excited to partner with the government and the country’s thriving AI ecosystem as we expand into the APAC region.”

Altman, who last visited Singapore in June 2023, highlighted the increasing demand for advanced AI tools across APAC, noting that Singaporeans rank among the highest-per-capita users of ChatGPT globally.

The number of weekly active users in Singapore has doubled since the start of 2024.

OpenAI plans to hire between five and ten employees before 2025 for roles related to sales, security, and solutions engineering, with a strong commitment to local talent.

The regional operations will be led by Oliver Jay, former chief revenue officer at Asana, who will serve as managing director of International based in Singapore.

The firm intends to collaborate more closely with Singaporean government partners, such as the Economic Development Board (EDB), to support AI development in the region.

OpenAI aims to invest up to US$1 million in resources to create AI models that accurately reflect the region’s diverse languages and cultures in partnership with AI Singapore.

AI Singapore is currently developing Sea-Lion, a network of large language models akin to ChatGPT, specifically trained for Southeast Asian users to ensure that the AI captures the region’s unique cultural nuances.

Since the public launch of ChatGPT in 2022, OpenAI’s technology has rapidly integrated into various AI solutions for businesses and government entities in Singapore, including customer service chatbots and an internal AI assistant for civil servants known as Pair.

Competing AI models from Google Cloud and Meta are also being tested in several local projects.

This expansion comes amidst reports of OpenAI transitioning from a non-profit research lab to a more investor-friendly, for-profit model due to rising operational costs associated with running powerful AI systems globally.

While OpenAI maintains that its non-profit arm is central to its mission, this shift has raised industry concerns regarding the management of AI risks, including data collection practices and ethical considerations.

OpenAI is set to host its first Developer Day in Singapore on 21 November, targeting local developers and start-ups to foster innovation in the AI space.

Continue Reading

Trending