Singapore Air shares slump on profit fall

Shares of Singapore Airlines, the world's second-largest carrier, fell the most in almost three years after brokerages including Merrill Lynch downgraded the stock following the airline's profit fall and a delay in deciding whether to sell stakes in two units.

Singapore Airlines shares fell as much as 5.4 per cent, or 80c, to S$14 ($14.25). It's the biggest fall since September 9, 2003. The airline's net income fell a lower-than-expected 7.1 per cent to S$266 million in the three months ended March, its fifth straight quarter of declining profit.

The state-controlled carrier's net profit fell 8.3 per cent to S$1.24 billion for the full year.

Chief executive Chew Choon Seng said the airline would have posted record annual profit if not for fuel prices.

Singapore Airlines, which has been increasing surcharges and hedging half of its fuel needs, spent 59 per cent more in fuel costs in the fourth quarter to S$1.12 billion. Fuel made up almost 36 per cent of the airline's total expenses in the quarter.

Earnings "were weaker than expected as fuel and staff costs were more than anticipated," Paul Dewberry, an analyst at Merrill Lynch in Hong Kong, said in a note.

"Management remains undecided on restructuring, denting hopes of an imminent return of cash to shareholders, which had supported the recent rally in the Singapore Airlines shares."

The airline said it would need more time to decide whether to sell stakes in Singapore Airport Terminal Services and SIA Engineering.

Singapore Airlines' fiscal fourth-quarter net income compared with a S$287 million median estimate from a Bloomberg News survey of 13 analysts.

Merrill Lynch's Dewberry downgraded Singapore Airlines stock to a "neutral" from a "buy".

Shares of Singapore Airport Terminal dropped as much as 6.8 per cent to S$2.46 and SIA Engineering shares lost as much as 3.7 per cent to S$3.60.

Singapore Airlines owns 83 per cent of Singapore Airport Terminal and 84.6 per cent of SIA Engineering.

Singapore Airlines' engineering and catering subsidiaries have to become independent companies to meet competition, Singapore's Minister Mentor Lee Kuan Yew has said.

"The board considered the matter thoroughly and comprehensively," Chew said.

"We came to the conclusion that it would want more time to consider all the opportunities before reaching a resolution. The board has not set a time frame but it will make a proper announcement at the appropriate time."

- BLOOMBERG