• Short term, the stock is expected to continue to come under pressure resulting from the extension of the grounding of Tiger Australia’s domestic flights till end July (instead of July 9th) and to some extent the A$2.25 mln repayment to the South Australian government.
• Taking a longer term view, we believe it is too early to seek comfort in Tiger seemingly coming under SIA, which has a 33% stake in Tiger.
• We believe SIA has little choice, given so much is at stake.
• Tiger, a Singapore incorporated company, with SQ, itself 54.9% owned by Temasek, as its largest shareholder, is the first airline to be grounded for safety concerns, by the civil aviation authorities of Australia, a first world country. (One could only recall Garuda being barred from flying to EC countries several years ago after several crashes.)
• Tiger has appointed Joe Pillay, one of the pioneers at SQ, as non-executive chairman. Chin Yau Seng, former head of cabin crew operations at SIA was appointed acting CEO of Tiger a few days ago.
• But there are serious concerns / uncertainties over Tiger’s future with SIA “in charge”.
• We would, for a start, rule out SIA privatizing Tiger because of “political sensitivity”, which Temaseklinked companies would be familiar with. SIA would surely recall the problems it encountered in India trying to do a JV with the Tata Group.
• And having plans for a budget airline for the long haul routes, one would not expect SIA to make compromises for the sake of Tiger.
• We therefore expect SIA to spend some time deliberating what to do with Tiger, eg how to grow it? One illustration, a budget airline can fly to Gatwick.Stansted instead of Heathrow; but there is only one airport in Bangkok; and landing slots are hard to come by, if at all.
• As such, we would not be in haste to bottom fish just yet.
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