Published September 3, 2008

SIA shares soar 3% to hit 5-week high

Spokesman dismisses rumours of another bid for China Eastern

By VEN SREENIVASAN

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SINGAPORE Airlines shares recorded one of its strongest rallies in recent months to close at a five-week high, triggering a slew of rumours about potential corporate activity.

A likely factor: Jet kerosene has fallen to below US$135 per barrel, its lowest level since May this year

The stock raced up 46 cents or 3 per cent to close at $15.64 yesterday - its highest close since July 30. Volume was heavier than recent daily sessions, with some 3.7 million units changing hands.

The strong performance sparked off frenzied market speculation that SIA could be launching another bid for a stake in Shanghai-based China Eastern Airlines.

But an SIA spokesman dismissed the speculation, saying he was not aware of any new developments on that front.

Last November, SIA and its majority owner Temasek Holdings launched a joint bid to buy a 24 per cent stake in China Eastern at HK$3.80 (S$0.69) a share in a US$920 million deal, but it was rejected by China Eastern's minority shareholders with many complaining that the stake was being sold too cheaply.

In January, the parent group of domestic rival Air China proposed a cash injection of US$1.9 billion that involved a broad tie-up between the two airlines' operations for HK$5 per share, but China Eastern rejected the offer.

So what was behind yesterday's SIA share price surge?

Oil - most probably.

Crude oil fell to the lowest in more than four months and natural gas dropped to a low for the year after Hurricane Gustav made landfall as a weaker-than-expected storm, easing concerns of major damage to rigs and refineries.

Crude oil for October delivery fell by more than US$4 to around US$111 per barrel in electronic trading on the New York Mercantile Exchange. Oil is now 24 per cent below the record of US$147.27 a barrel on July 11.

After accounting for the refining or 'crack' spread, this means that the price of jet kerosene has fallen to below US$135 per barrel, its lowest level since May this year.

In June, International Air Transport Association (Iata), which represents carriers that account for over 90 per cent of the global air traffic between them, said that the aviation industry could lose some US$6.1 billion this year if oil stayed at US$135 per barrel.

Iata will be issuing its latest global air traffic and profit forecasts today at around 1200GMT.