SELL; S$1.045; Price Target: S$ 0.90
According to press reports, the Civil Aviation Safety Authority of Australia (CASA) has announced that it will be applying to the Federal Court in Melbourne tomorrow morning to seek an order to extend the license suspension of Tiger Airways Australia further from July 9 up to August 1, at least. This is not unexpected, as we had highlighted the possibility of the fleet suspension being extended in our latest report. The possible extension was sought despite meetings between Tiger's top executives and CASA investigators during the week.
CASA has sought the order to seek extension, as it will not been able to complete its investigations within the initial 5-working day period. If the court allows the extension and CASA is able to complete investigations before Aug 1, and is satisfied with Tiger's safety mechanisms, it may be possible for Tiger Australia to resume operations earlier. However, Tiger Australia has already stopped selling tickets on its website, and given the lack of forward ticket sales, we do not foresee it to resume operations before Aug 1 even if the regulator is satisfied before then.
In terms of impact, this means at least S$8m in direct losses for the 4 weeks of suspension (S$2m per week as estimated earlier by management), which is within our earnings estimates cut earlier this week. However, there could be more losses that are harder to assess like the A$2.25m fine the South Australian government is seeking to impose on the airline for breaching some agreements. There is also complaint from the consumer watchdog over domestic ticket sales during the initial days of the grounding. There will be maintenance costs involved as well in getting the grounded fleet back in the air. Overall, we reckon there could be further downside to our earnings estimates as the crisis plays out over the following weeks and we maintain our SELL recommendation at a TP of S$0.90.
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