As according to plan in the Investment Portfolio Restructuring, SIA-SATS has completed divested, the second after SingPost. The divested price was at S$4.4059/share for the combine entity. With a holding price of S$5.8764/share, the divestment netted a capital loss of -25.50%, dividend return of +27.29%, giving a net return of +1.80%. This translates to an annualized return of -2.24% without inclusive of dividend return and +0.14% with inclusive of dividend return.
Given the large capital loss and just a barely positive return after inclusive of dividend, why divest away ? Moreover, there is believe the worse should be over for aviation section due to the pandemic, both SIA and SATS should be seeing price appreciation going forward. Well, whether the worse for pandemic is over or not, just too early to tell. Even if it is, the recovery of aviation sector will still be a long haul to the pre pandemic level. There are also several other factors that SIA could face in its road to recovery, something that is not a straight path for sure.
Firstly, SIA today is not the SIA before the pandemic. It has turned from a net cash airline to one in net debt. Secondly, the challenge of cruel oil price which in the past affected its profit margin will not be going away. Either it faces with rising cruel oil price or hedges at the wrong value. Thirdly, upgrading of old airplanes. SIA is renowned in keeping its fleet of airliners in the tip top conditions by not operating airliners beyond certain lifespan. According to statistic (refer here). The average age of its airliner as of FY20/21 was 61 months, the highest average age was 92 months for FY16/17 with most of the time on average it will phase out and purchase of new airliners to maintain an average age of 80 months. Now referring to 2 set of statistic, breakdown of fleet as of Dec 2021 (refer here) and airliner average age breakdown (refer here). The breakdown of airliner average age might not be the latest but if comparing the 2 set of statistic, it can find that it has 3 group of airliners (Airbus 380, Boeing 747 and Boeing 777) all having age of more than 10 years, way above the average age of 61 months or even the highest of 92 months. This meaning these group might be phasing out soon and either the delivery of new airliners to replace them is already in process or it needs to do it next. Purchasing fleet of airliners is not a cheap investment. In the past when SIA was in net cash position, it shouldn't be a big problem but now situation has changed, it is in net debt position. Should the recovery is not fast enough, the net debt position will continue or might even worsen due to the need of replacing old airliners. The last concern is the dividend return. SIA didn't give out dividend for last year, a first since I invested in 2009. The past of good dividend might not be returning soon. Whether will it resume dividend distribution for this year is still very much questionable given it is in net debt position now and recovery is on the way.
Recovery of aviation sector after post pandemic and how individual airline could bounce back to the good old days afraid is a different and separate thing. For me, it is possible to continue to hold on to the investment and wait for everything turn positive, namely capital gain but the question is always how long will that take ? Given the uncertainty and now divesting aways still able to net a overall positive return, just bite the bullet and do it. After restructuring, I would be able to have more time to focus on the "Strategic" and get the capital gain which definitely is more worthy than plain waiting for the price of SIA-SATS to appreciate to net in the capital gain.
First invested in 2009 and that is like holding for almost 13 years to eventually divesting away. A period of 13 years duration, apart from just counting the loss and gain of capital, there are definitely more things that have been learned throughout the investment journey. It is these lessons and experiences that matter most to me than the financial aspect.
