Singapore Air May Delay Plane Deliveries as Travel Demand Falls

Feb. 20 (Bloomberg) -- Singapore Airlines Ltd., the world’s largest airline by market value, may need to postpone deliveries of new aircraft for the first time in five years as the global recession hurts travel demand.

“They may have no choice but to delay deliveries,” said Ryu Je-Hyun, a Hong Kong-based analyst at Mirae Asset Securities Co. “If they ground planes, they still have to pay depreciation costs and if they take delivery, they have to pay the remaining cost for the aircraft.”

Chief Executive Officer Chew Choon Seng will begin taking out 17 percent of the airline’s fleet starting in April on sinking travel demand that’s already pushed British Airways Plc and Japan Airlines Corp. to losses. Singapore Air, first to operate the superjumbo Airbus SAS A380, will slash capacity 11 percent after quarterly profit fell the most in at least five years.

The airline has 51 planes on order from Airbus and 21 on order from Boeing Co., according to its website. Airlines worldwide are taking planes out of service, deferring deliveries of new aircraft and eliminating jobs to lower costs as travel demand crumbles.

“We have not yet deferred any aircraft deliveries yet, but are examining options to do so,” said Stephen Forshaw, the Singapore Air spokesman. “Our deliveries of new aircraft are not just about growth, but also to adhere to our long-standing policy of fleet renewal,” he said.

Declining Traffic

Asia-Pacific passenger traffic sank 9.7 percent in December, while freight volumes tumbled 26 percent, the International Air Transport Association said on Jan. 29. The traffic declines for both passengers and freight were the biggest of any region, the trade group added. The industry may lose as much $2.5 billion this year, with carriers in the Asia-Pacific region accounting for almost half of the deficit, according to the IATA.

Kingfisher Airlines Ltd., owned by India’s biggest brewer, this month deferred its first delivery of the A380 to 2014 from 2012. Air France-KLM Group, Europe’s largest carrier, said Feb. 16 it’s postponing deliveries of six Airbus and Boeing planes to reduce spending. China Eastern Airlines Corp., the nation’s third-largest carrier, may cancel orders for as many as 15 planes.

“Things are certainly looking bad now and delaying orders is an option Singapore Air may take,” said Jim Eckes, managing director of industry adviser Indoswiss Aviation. “Carriers worldwide are already sending signals to the manufacturers that they won’t take deliveries for the next two to three years.”

Planes in Desert

The number of planes removed from service has more than doubled in the 12 months to Jan. 31, a more drastic shift than after the Sept. 11, 2001, terrorist attacks or the outbreak of severe acute respiratory syndrome in 2003, according to data compiled by Bloomberg. Planes taken out of service are typically parked in deserts for storage.

“Singapore Air will still take delivery of fuel-efficient planes such as the A380,” said Rohan Suppiah, an analyst at Kim Eng Securities Co. “They may push back some of the A330s.”

The carrier this year took delivery of the first of 19 A330- 300 aircraft it has on order, with another three due to arrive by the end of March. The plane can carry as many as 335 people and costs $201 million at list prices, according the Airbus web site.

The carrier said Feb. 16 it will take planes out of service and will consider job cuts only “as a last resort.” The airline held talks with labor unions on measures to reduce costs, including voluntary leave without pay, early retirement and shorter work months, the carrier said in a statement. The carrier last week reported a 43 percent slide in net income. The airline’s shares have fallen 10 percent this year.

Airlines worldwide are more likely now to defer deliveries of new aircraft than three months ago as demand for air travel slumps, a Jan. 20 survey by UBS AG said. Almost a third of the respondents said they were more likely to postpone the delivery of planes on order, compared with 8 percent three months ago.