SIA shares drop, but airline unlikely to be financially impacted by severe turbulence incident

SINGAPORE - Shares of Singapore Airlines (SIA) fell on the first day of trading after a deadly turbulence-hit flight, but brokers said there was no major selling pressure on the counter.

The shares were down six cents, or 0.9 per cent, at mid-morning to $6.70, with a modest 4.2 million shares traded.

The stock fell 1.6 per cent when trading opened, but quickly pared losses. It ended five cents, or 0.74 per cent, lower at $6.71 on May 23.

This came in the wake of

severe air turbulence that affected SIA Flight SQ321 from London to Singapore on May 21,

which resulted in one death and dozens of passengers injured.

The plane made an emergency landing at Bangkok’s Suvarnabhumi Airport, where its distressed passengers disembarked.

Most of the passengers have been flown to Singapore

over the past two days, with 20 still under intensive care in Bangkok hospitals as at May 22.

While noting that air turbulence is a common occurrence on international flights, analysts are nevertheless trying to ascertain the potential financial impact on SIA from this incident,

which resulted in one fatality from a heart attack.

Preliminary conclusions suggest that any financial liability will be minimal, if there is any at all, they said.

An analyst at a local brokerage house pointed out that airlines are generally covered by insurance for such events. In short, SIA is unlikely to be paying for damages resulting from the events of May 21. These include liability claims and repairs for the aircraft, analysts said.

While no research report has emerged as at the morning of May 23, internal memos noted that the Boeing B777-300ER model involved was a “mature and reliable” aircraft that has been flying for over 20 years.

Analysts also noted that its engine model (GE90-115B) was proven for reliability and not problematic like some newer engines that have been in the news in recent years.

SIA operates 22 B777-300ER aircraft, representing 11 per cent of its total fleet of 200 aircraft.

“Given the long track record of B777-300, we think it is unlikely that there would be some negative implication for SIA’s entire B777-300ER fleet,” one memo stated.

All this comes after the airline group unveiled its

second consecutive year of record profit

on May 16, posting $2.67 billion in earnings for the year to March, 24 per cent higher than the previous year. The company also declared a bonus of up to eight months’ salary for staff.

Analysts generally had a “hold” call on the stock, citing competitive challenges ahead, and projected a fall in operating profit due to pricing and cost pressures.

DBS had a “hold” call and a target price of $6.10, while UOB Kay Hian also had a “hold” call with a slightly higher target price of $6.35.