Tiger Tiger Why The Rush?
Conrad Raj is one of the few journalists in Singapore who does not copy and paste the official government press release.
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TIGER, TIGER, WHY THE RUSH?
Conrad Raj
Today Online
ALTHOUGH Tiger Airways' public issue of 165 million shares is likely to be fully taken up, response to the offering by the Singapore-based budget carrier has been less than enthusiastic despite Singapore Airlines currently being its largest single shareholder with a 49-per-cent stake.
The main reason for the lukewarm response is its price.
At $1.65 a share, it appears expensive for a company that, overall, has yet to make a single cent since its inception some five years ago. This despite its forecast that it would be in the black from the very first year of its operations.
Tiger president and chief executive Tony Davis said its Singapore operations has "been reporting annual profits since the third full year of operations". But the airline as a whole disclosed for the financial year ended March 2009 that it had lost more than $50 million, had negative equity of $110 million, and had run down its cash balances to $13.2 million from $33.4 million.
Yet, the airline is predicting that for the current 12 months to end-March, it will report profits of $41.6 million. And it gets better over the next few years with forecast earnings of $54.6 million for 2010-11 and just under $75 million for the 2011-12 period.
All this just from its airline operations?
The IPO, which values Tiger at about $800 million and would raise $273 million ($247 million net), has been downsized from an earlier estimate figure of over $350 million, another indication, said some analysts, that it's not such a hot issue.
Although the budget sector is the fastest growing segment of the airlines industry, it's not as if Tiger is a monopoly. There are many competitors, not only in the region but from Australia and India.
Furthermore, it's not as if the traditional carriers like Cathay, Qantas, Thai, Emirates and Qatar, are going to just roll over and play dead.
Even parent Singapore Airlines and its subsidiary Silkair, will be formidable competition. Just recently, they slashed prices sharply to weather the downturn.
On top of this, fuel prices appear to be going up once again. Being the single largest component these days in operational costs, fuel is certainly going to have an adverse impact on Tiger's attempt to turn in a profit.
Tiger has also embarked on a massive expansion programme, which will see its fleet size grow from 17 Airbus A320s now to 68 planes by end-2015. What impact will this have on its debt burden, which is already expected to increase sixfold, from $101 million to $600 million by end-March 2012?
And in one of its main markets, Australia, where it has hubs in Melbourne and Adelaide airports, Tiger continues to face tough competition from Qantas' Jetstar and Mr Richard Branson's Virgin Blue, which is planning a joint venture with America's Delta Airlines. In fact, most of its losses stem from its Australian operations.
Yet, a company press release said Tiger "benefits from the well-established and highly developed Australian aviation industry, which is the fourth largest domestic travel market in the Asia Pacific region".
For sure, Australians have a "greater propensity to travel per capita than any other developed country", but they are also well-known bargain travellers.
The thing that intrigues observers the most is the timing of the issue.
If, as Tiger said, things are going to get rosier in the next few years, why not turn in a profit first before launching the public offering?
At present, it is going for more than 10 times its 2012 forecast earnings. Most IPOs here launch at less than that.
And why is United States private equity firm Indigo Partners, which currently has a 24-per-cent stake, so ready to part with a substantial part of that - 9.6 million shares?
Perhaps, investors would be better off giving the IPO a miss and buying Tiger shares on the open market when they start trading later in the week.