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Changi Airport at a Standstill: Estimating SATS' cash burn (SGX:S58)

SATS’ (SGX:S58) share price has been battered by the COVID-19 situation, with a year to date decline of 44% as of yesterday’s closing.

As some of you may have read, I bought SATS at $4.49 earlier in February. I had been following SATS for a long time, and really liked how the company operates and its growth prospects. At that point of time in early Feb, the Covid-19 situation wasn’t expected to spread so rapidly, hence I felt that the dip in price was an opportunity to accumulate. Subsequently, pandemic spread across the globe, resulting in almost all passenger flights at Changi Airport being grounded. With each new travel ban announced, SATS’ share price continued to take a beating, as their main revenue streams were cut off.
Evidently, the aviation industry has been battered by the shutdown of airports and grounding of flights. US airlines have been negotiating bailout packages with the government, while closer to home, SIA has recently announced a rights issue and a convertible bond offering, to shore up its balance sheet during this challenging time. SIA expects to raise a total of S$8.8 billion, a huge sum which would allow it to withstand these unprecedented times.

With the Covid-19 situation still uncertain and travel bans still expected to be in place at least for the next couple of months, I wanted to look at how SATS’ cash flows would fare in this environment. Specifically, I wanted to estimate how many months of cash burn would SATS be able to withstand before their cash pile is depleted. I was inspired to write this post, after reading Brian’s post on ForeverFinancialFreedom, where he wrote about the cash burn of Singapore Airlines (SIA). I have included the link to his blog here, if you are keen to read further:

Please note that the following estimations are for informational and learning purposes only, and should not be taken as financial advice regarding SATS' shares. All figures and estimations used in the following discussion are for informational purposes, and should not be taken as a solicitation to transact in SATS' shares. When in doubt, please approach a registered financial advisor for advice.

Firstly, I used SATS’ income statement from FY2019, and used the annual figures to calculate a monthly breakdown of revenue and expenses. The key assumption here is that revenue and expenses are evenly split across the months, whereas in reality, air travel tends to peak during the school holidays and during the year end period.

Source: SATS Annual Reports, Author's estimates


SATS’ latest annual report, aviation services made up 85.7% of revenue. While passenger travel has fell sharply since the travel restrictions were imposed, cargo flights have declined by a lesser degree, as seen from the Air Statistics that Changi Airport reports monthly. Data from Changi Airport’s website showed that passenger movements fell 32.8% in February 2020, from a year earlier. Whereas for commercial aircraft movements, it was down 12.3% for the same period. Hence for February, I estimated that revenue would have declined by 33%. For March 2020 onward, after the complete ban of all short term visitors to Singapore, air travel is almost non existent, apart from the few flights bringing Singaporeans home. SIA indicated that it has grounded 96% of its fleet.

Non aviation revenue accounted for 14.3% of revenue. While non aviation revenue would also be affected as SATS serves cruise ships as well, their food solutions revenue for non-aviation segment may be less affected. For example, SFI provides catering services which may be less affected by the restrictions. Additionally, SATS also operates central kitchens which may still be operating, given that more packed food is required for takeaways.

Hence, for March 2020 onward, I estimated that revenue would fall 90%, with the remaining 10% revenue representing non-aviation services and the air freight side of aviation operations.

Staff costs

For the February figure, I estimated a 10% decrease in salary expenses, as the first round of pay cuts were introduced in mid-Feb, which reduced the salary of management personnel, allowed staff to go on voluntary unpaid leave or opt for early retirement. In March, SATS announced another round of pay cuts, which included the board of directors, senior managers, managers and assistant vice presidents.

Additionally, the Supplementary Budget announced by DPM Heng included the Jobs Support Scheme, where the Government will offset 75% of ground handling and airport operator’s salaries, capped at $4,600. This would help SATS relieve a huge part of their costs pressures while protecting jobs. As the average staff cost per employee is $52,304 as per their 2019 Annual Report, it would be reasonable to expect that the JSS would cover a significant number of employees, as most of these staff would have salaries below $4,600. Hence, I estimated a 50% decrease in overall salary expenses.

Raw material costs

This is most likely to be variable in nature, given that SATS prepares in-flight meals based on demand. Hence, it is likely that SATS would be able to reduce their raw material costs in proportion to the decrease in revenue. For raw material costs, I pegged it to a % of revenue, and increased it to 20% of revenue from c.14%, to account for the fact that certain raw materials are perishables, which would have to be written off if unused.

License fees

This part gets slightly tricky, as SATS has operations both in Singapore and subsidiaries abroad. For Changi Airport, I think it is fair to estimate that the bulk of the license fees would be waived, as mentioned in the Supplementary budget. To quote from DPM Heng’s Budget speech, “$350 million enhanced aviation support package to fund measures such as rebates on landing and parking charges, and rental relief for airlines, ground handlers, and cargo agents.” Hence, I estimated that 75% of license fees would be waived.

Depreciation and amortisation

I have kept this constant based on the past year’s figures. Depreciation and amortisation are non-cash expenses which would only affect operating profits but not cash flows. Hence, while depreciation remains constant, SATS’ cash flows would not be affected by these figures. Subsequently, I added depreciation expenses back when estimating the cash flows.

Company premise and utilities expense

For utilities, there is both a fixed and variable component as the company would still have to maintain a certain level of operations, which would incur utility costs. Hence, I estimated that company premise and utilities expenses would be cut by 60%. As per the enhanced aviation support package discussed above, rental relief would also be provided to ground handlers, although the actual amount is not specified. This would reduce company premise expense (rental) as well.

Other costs

There’s quite a bit of ambiguity here again, as SATS only mentioned in their Annual Report that “Other costs increased due to higher fuel costs and IT expenses as we continue to invest in technological initiatives to improve service and productivity. Other costs rose to support increased project activities. In particular, professional services costs increased, mitigated by foreign exchange gains and grants received during the year.” Hence, SATS may undertake certain costs cutting measures and scale down on new projects. I estimated that other costs would decrease by 20%.

Interest expense

SATS interest expense has been very low due to its low debt. Recently, SATS raised 200m of debt at 2.88%, which seems like a very favourable rate in this environment. This probably reflects SATS’ strong balance sheet positions with very low debt (gearing ratio of 6%), which allows it to borrow more during this period without significantly affecting its financial position.

Share of results of associates/joint ventures, net of tax

I did not discuss this figure, which amounted to $58 million in FY2019 and $71 million in FY2018. I believe that it is difficult to meaningfully estimate the impact on associates/JVs as this would require a similar level of line by line analysis for each of the associates/JVs. Hence, it is implied that there’s a zero contribution from the associates/JVs during this period, although it is possible that profit contributions from them could be negative if they were to make losses. That would further worsen SATS’ cash burn.


As at 31 Dec 2019, SATS had 212.4 million in cash. In addition to the 200m raised last week, SATS appears to be able to withstand the cash burn over the next few months. During this period, I have taken profit and cut losses on other positions, but SATS is one that I intend to hold for the long term. If you’re keen to learn more about how SATS earns its revenue (during normal times), do check out my earlier post here:  

Lastly, do note that SATS’ largest shareholder is Temasek Holdings, with an approximately 40% stake. If things do deteriorate further, would we potentially see Temasek step in, similar to the situation for SIA? Only time will tell.

Note: As of time of writing, I hold shares in SATS

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