Connect with us

Current Affairs

Even ST starts to question SIA’s fuel hedging policy after shareholder’s FB post

Published

on

It all started when Singapore Airlines (SIA) shareholder Lim Seng Hoo posted his analysis of SIA’s fuel hedging “bets” over the past 14 years on his Facebook page.

Mr Lim even raised his concerns of SIA’s fuel-hedging losses to PM Lee after fruitless attempts of voicing out the matter to SIA CEO Goh Choon Phong. Mr Lim is concerned that no one in SIA is taking responsibility of the company’s continual hedging losses.

“These hedging losses are recognized in ‘fuel costs’, hence would be missed out by the average reader. They are only fully revealed in the footnotes (in annual reports) under what are charged/(credited) before arriving at the profit figure,” noted Mr Lim.

He said that SIA “went big” on fuel hedging after the surge in oil prices at the end of 2007 and also during the Lehman Brothers crisis in 2008.

According to Mr Lim’s analysis, in the past 14 financial years from 2007 to 2020, SIA suffered 8 years of hedging losses vs 6 years of gains. However, cumulatively, the losses far outweighed the gains in the 14 years – losses of $3,885.1 million vs gains of $876.7 million, resulting in a net loss of $3,008.4 million ($3 billion).

The airline is currently in a “very deep problem” which stemmed from its fuel hedging practice, said Mr Lim.

Shareholder’s plea fell on deaf ears

As far back as 2015, Mr Lim said he already wrote to SIA warning about the airline’s fuel hedging practices. When in 2016, the accumulated hedging losses hit $2.5 billion, he wrote to SIA again.

Subsequently, Mr Lim had a chance to meet two vice presidents of SIA, where he explained to them on “why their reading of the oil market was flawed” and the “secondary dangers” of fuel hedging.

“I also attended the 2010 AGM and pleaded there that this practice [should] be ended before more huge losses arise,” he recalled.

“Then Chairman Mr Stephen Lee, fielded my question… and he said he did not see these losses in the accounts, and the hedges are in some years profitable, while in others unprofitable; to which I looked at everyone looking at me, and said, ‘The Chairman does not know’, and respectfully sat down.”

Mr Lim reiterated that SIA’s core competence is not in fuel trading but airline services. But no one in SIA, certainly not its CEO Goh, took him seriously.

Meanwhile, Mr Lim implored SIA not to hide all these fuel hedging troubles under the “cloud cover of COVID-19”. He also expressed disappointment with the management and direction of SIA, noting that the “sacrifice of all hardworking SIA staff over the years” will be wasted due to “one strategic blunder”.

Mr Lim added that the fuel hedging practices of SIA must be deeply curtailed if not entirely stopped. He estimated that when all the other non-utilizable hedges mature, SIA cumulative net losses from its fuel bets since 2007 would even be closer to $5 billion.

ST questions SIA’s fuel hedging policy

Today, in a commentary piece, Strait Times’ senior transport correspondent Christopher Tan wrote that SIA should start to review its fuel hedging policy (‘SIA should review its fuel hedging policy‘, 26 Sep).

Mr Tan noted that the Facebook post made by Mr Lim has been making rounds on social media, “Charting a performance over a 14-year period from 2007 to 2020, culled from the airline’s own financial reports, Mr Lim Seng Hoo said SIA had lost more than it gained from hedging activities.”

Supporting Mr Lim’s analysis, Mr Tan said, “Its (SIA’s) 2007-2020 fuel-hedging performance brings into question the very practice of hedging.”

Fuel hedging is not necessary wrong. It’s a way of providing protection against fuel price variations by locking in prices for the longer term, so that there would be certainty in the airline’s operation cost.

However, the collapse in oil prices has left companies “over-hedged,” effectively meaning they have bought more insurance than they need. Buying oil from the open market now is even cheaper. But since these airlines have already entered into “future” contracts with sellers, they must pay at the agreed higher oil prices at settlements. So, with or without passengers, airlines which bet on oil futures must honor the forward contracts they signed with sellers.

In better times, hedging losses for SIA was “covered up” by larger operation profits. However, the hedging losses become more “glaring” when SIA began to lose money. In the financial year ending 31 Mar, SIA suffered its first annual loss in its nearly half a century of history. This was due in part to the US$638 million in charges on failed oil hedges.

According to a Wall Street Journal’s (WSJ) article in Mar, U.S. carriers have in general cut back on these financial bets after being wrong-footed by an earlier plunge in oil prices about five years ago. Many airlines instead use customer fuel surcharges as a way to adapt to changing oil prices.

But SIA continues to use oil hedging strategy. Not only that, SIA uses an “unusually farsighted approach” to manage its fuel costs, said WSJ. SIA has hedged some of its fuel costs up to five years out, while other airlines will generally go with a 1 to 2-year horizon. Of the 33 listed global airlines with fuel-hedging policies, SIA was by far the longest, according to Morgan Stanley research last year.

In fact in Jan this year, SIA said it had hedged the bulk of its expected fuel costs out to March 2025. For the four years from April 2021, it had hedged more than half of its fuel needs based on Brent crude at US$58 to US$62 a barrel.

Though Brent crude prices have recovered somewhat but it is still way below US$50. If COVID-19 continues on with oil prices languishing, SIA will surely continue to suffer more losses over its fuel bets, perhaps all the way to 2024, the year indicated by IATA that travel industry will recover from the pandemic.

Oil hedging: Betting against experts

Like Mr Lim, industry observers have also pointed out that hedging is highly speculative. Many commented that having long hedging contracts for an airline runs counter to the basic principle of fuel hedging. It locks in the airline’s fuel position for an extended period, preventing it from beneficial cost manoeuvres.

In a Wall Street Journal article, its chief executive Scott Kirby said, “Hedging is a rigged game that enriches Wall Street.”

Rod Eddington, former CEO of British Airways, once said, “When you hedge, all you do is bet against the experts in the oil market and pay the middleman… You can run from high fuel prices briefly through hedging but you can’t run for very long.”

But obviously, SIA CEO Goh thinks otherwise.

“So, should SIA review its fuel hedging policy?” asked ST correspondent Tan. “In a word, yes. At the very least, it should rethink its five-year hedge.”

Despite SIA’s hedging troubles, Mr Lim said he refuses to sell his SIA shares which he bought when the company first went public in 1985.

“I wish for Singapore, to have the best airline, best airport, and on our roads, a world-class transportation system; and I believe we can achieve all of these! This is why I haven’t sold my shares, and also picked up all my rights, albeit painfully. They were savings for the education of my 5 children,” he said.

But if SIA CEO Goh continues his betting thrill in oil futures, based on his betting performance in the last 14 years, it’s not known if there would be any education savings left for Mr Lim’s children.

 

Continue Reading
26 Comments
Subscribe
Notify of
26 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments

Current Affairs

Ng Eng Hen: Dust clouds likely caused armoured vehicle collision during Exercise Wallaby

Dust clouds limiting visibility likely contributed to the collision between two Hunter vehicles during Exercise Wallaby, Defence Minister Ng Eng Hen explained in his parliamentary reply. 12 servicemen sustained mild injuries, but safety measures prevented more serious outcomes. A formal investigation is ongoing to ensure further safety improvements.

Published

on

SINGAPORE: Low visibility caused by dust clouds was identified as the likely cause of the collision between two Hunter armoured fighting vehicles (AFVs) during Exercise Wallaby last month, Defence Minister Ng Eng Hen said in a written parliamentary response on Tuesday (15 October).

The incident, which occurred in Queensland, Australia, on 24 September 2024, resulted in mild injuries to 12 servicemen.

Dr Ng’s statement was in response to a parliamentary question from Mr Dennis Tan, Workers’ Party Member of Parliament for Hougang SMC.

Mr Tan asked for details on the accident, specifically its cause and whether any lessons could be applied to enhance training and operational safety within the Singapore Armed Forces (SAF).

The collision took place during a night-time movement of Hunter AFVs at the Shoalwater Bay Training Area.

The vehicles were returning to base when one rear-ended another. Dr Ng explained that the dust clouds generated by the AFVs’ movement significantly impaired visibility, might likely contributing to the accident.

The 12 affected servicemen sustained mild injuries and were promptly taken to the nearest medical facility.

None of the injuries required hospitalisation, and all 12 servicemen were able to rejoin their units for training the next day.

According to the minister, adherence to safety protocols—such as wearing seat belts and protective gear—played a crucial role in limiting the injuries to mild ones.

Following the incident, a safety pause was immediately implemented, with all drivers being reminded to maintain proper safety distances, especially when visibility was compromised.

Troops were also reminded to adhere strictly to safety protocols, including the proper use of safety equipment, Dr Ng added.

The safety lessons from the incident were shared not only with the affected units but also with other participating groups in the exercise, as well as units back in Singapore, through dedicated safety briefings.

Mr Tan also asked about the broader implications of the incident. In his response, Dr Ng said that a formal investigation had been launched in accordance with SAF’s safety incident protocol.

The investigation aims to assess the circumstances more thoroughly and identify any further measures that could be taken to enhance safety.

Dr Ng shared that recommendations arising from the investigation will be implemented where necessary.

Exercise Wallaby is SAF’s largest unilateral overseas exercise, and the 2024 edition began on 8 September, running until 3 November.

The exercise involves approximately 6,200 personnel, including 500 operationally ready national servicemen.

The exercise has been conducted at Shoalwater Bay Training Area in Queensland since 1990, and it is a key part of SAF’s overseas training program.

The Hunter AFV, one of the vehicles involved in the collision, is a state-of-the-art platform jointly developed by the Defence Science and Technology Agency, the Singapore Army, and ST Engineering.

It replaced the SAF’s aging fleet of Ultra M113 AFVs in 2019, which had been in service since the 1970s. The Hunter is equipped with advanced features, including a 30mm cannon, a 76mm smoke grenade launcher, and an automatic target detection and

tracking system designed to enhance operational effectiveness. It is also capable of traveling at increased speeds and covering longer distances, making it a versatile asset for the SAF.

Continue Reading

Current Affairs

Government to “carefully consider” Lee Hsien Yang’s demolition application for 38 Oxley Road

The Singapore Government will “carefully consider” Mr Lee Hsien Yang (LHY)’s application to demolish the house at 38 Oxley Road. LHY announced his intent on Tuesday morning following the recent death of his sister, Dr Lee Wei Ling, reaffirming his commitment to honour his parents’ wish for the house’s demolition.

Published

on

The Singapore Government has indicated that it will “carefully consider” Mr Lee Hsien Yang’s (LHY) application to demolish the family home at 38 Oxley Road.

LHY, the youngest son of Singapore’s founding Prime Minister, the late Lee Kuan Yew (LKY), announced his intention to apply for the demolition in a Facebook post on 15 October 2024, following the death of his sister, Dr Lee Wei Ling, on 9 October.

The announcement marks a significant development in the ongoing saga over the fate of the historically significant property, which has been at the heart of a family dispute since LKY’s passing in 2015.

In his will, executed in December 2013, LKY expressed his desire for the house to be demolished “immediately after” Dr Lee moved out of the property. Dr Lee, a prominent neurologist, had been the last remaining resident of the house.

LHY reaffirmed his commitment to carrying out his father’s wishes, stating, “After my sister’s passing, I am the only living executor of my father’s estate. It is my duty to carry out his wishes to the fullest extent of the law.”

He added that he would seek to build a small private dwelling on the site, which would be “held within the family in perpetuity”.

LHY also referenced his brother, Senior Minister Lee Hsien Loong’s (LHL) remarks in Parliament in 2015, when he was Prime Minister, stating that upon Dr Lee’s passing, the decision to demolish the house would rest with the “Government of the day.”

In response to media queries regarding LHY’s announcement, a spokesperson for the Ministry of National Development (MND) acknowledged the intended application and emphasised that the Government would “carefully consider issues related to the property in due course”.

The spokesperson also highlighted that any decision would need to balance LKY’s wishes, public interest, and the historical value of the house.

The house at 38 Oxley Road, where key decisions about Singapore’s path to independence were made, has been a focal point of public and political discussion.

The future of the house became contentious in 2017 when LHY and Dr Lee publicly accused their elder brother, LHL, of trying to preserve the house against their father’s wishes for political reasons.

LHL denied the accusations, issuing a Ministerial Statement in Parliament, where he also raised concerns over the preparation of their father’s final will. He clarified that he had recused himself from all decisions regarding the property and affirmed that any government action would be impartial.

In 2018, a “secret” ministerial committee, which was formed in 2016 to study the future of 38 Oxley Road, proposed three options: preserving the property and designating it as a national monument, partially demolishing the house while retaining the historically significant basement dining room, or allowing complete demolition for redevelopment. LHL accepted the committee’s conclusions but stated that no immediate decision was necessary, as Dr Lee was still living in the house.

In a statement conveyed by LHY on behalf of Dr Lee after her passing, she reiterated her strong support for her father’s wish to demolish the house. “My father, Lee Kuan Yew, and my mother, Kwa Geok Choo, had an unwavering and deeply felt wish for their house at 38 Oxley Road to be demolished upon the last parent’s death,” the statement read.

She added, “He had also appealed directly to the people of Singapore. Please honour my father by honouring his wish for his home to be demolished.”

Despite selling the house to LHY at market value in 2015, LHL’s stance regarding the house’s preservation became a public issue, especially after the family disclosed that the Government had raised concerns about reinstating the demolition clause in the 2013 will. The ministerial committee had reviewed the matter, but a final decision was deferred until now.

The fate of 38 Oxley Road remains to be seen, but the Government’s decision will likely have lasting implications for the legacy of the Lee family and the conservation of Singapore’s historical landmarks.

Continue Reading

Trending