The Covid-19 situation has hit the aviation industry really hard and in particular the airlines, SIA, since they are highly capitalized business which needs constant cashflow to fund their operating costs, capex and fixed costs. In the scenario where they have to cut capacity like where we are in this situation now, the company may be able to “save” on their operating costs since they do not have to incur charges like handling and ground charges that are related to the operating business.
This post was originally posted here. The writer, Brian Halim is a veteran community member and blogger on InvestingNote, with username known as 3Fs and 2068+ followers.

Singapore Airlines Ltd (SGX: C6L) Is In Deep Shit And Rights Issue Call Is Imminent
The Covid-19 situation has hit the aviation industry really hard and in particular the airlines since they are highly capitalized business which needs constant cashflow to fund their operating costs, capex and fixed costs.
In the scenario where they have to cut capacity like where we are in this situation now, the company may be able to “save” on their operating costs since they do not have to incur charges like handling and ground charges that are related to the operating business.
But, they do have to continue paying for parking charges to the airport, levies as well as fixed costs such as salaries and rental that will continue to bleed the business.
Cashflow Simulation Run
I’ve run a simulation run where the left hand side shows their latest Q3 results for the year ending 31 Dec 2019, while the middle portion reflects what the situation is today. On the right side, I’ve accounted for movement that is related to cashflow, so things like depreciation is taken out of context because they are non-cashflow related items.
The middle portion reflects the current scenario we have today.
For example, the topline sees a 95% capacity cut which was announced just a few days ago since Singapore is on semi-lockdown situation. Consequently, I’ve adjusted the same for operating costs related such as fuel, inflight meals and handling charges.
For staff costs, I’ve used a 20% haircut across the payroll while for other fixed costs I’ve taken a 50% haircut.
The resulting loss coming in from this simulation is a negative $(1,998m) for the quarter. If we divide this by months, it means incurring a net loss of $(666m) / month.
What this means from a cashflow point of view is that should the situation prevails, the company is burning approximately $1,461m in cash every quarter, or $487m every month.

Now, this might look okay if you are in a good standing order in terms of your balance sheet but let’s see what they have today. …
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