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Is Tiger Airways Holdings Limited The Spoilt Child Of Singapore Airlines Ltd.?

The phrase “born with a silver spoon” is often used to describe a spoilt child of a rich person. Being unable to survive on their own, spoilt rich children require constant funding from their parents.

Although the phrase is normally used on people, it can also take on a new meaning when looking at publicly-listed companies. For one, it can be an apt description of Tiger Airways Holdings Limited’s (SGX: J7X) relationship with its largest shareholder, Singapore Airlines Ltd. (SGX: C6L).

Since Tigerair’s initial public offering in 2010 at S$1.50 per share, the experience has been nothing short of unpleasant for investors – the low-cost carrier is currently trading around S$0.30 per share, about 80% off its IPO price.

This week, it was revealed that Singapore Airlines will be converting the convertible securities it holds of Tigerair into new shares of the low-cost carrier. In the process, Singapore Airlines’ ownership stake in Tigerair will be boosted from 40% to 55%. By doing so, Tigerair would become a subsidiary of Singapore Airlines.

That’s not all. Singapore Airlines is also planning to subscribe to the rights issue which was announced by Tigerair last week. With the rights shares, there’s a possibility of Singapore Airlines raising its stake in Tigerair up to 71%.

Tigerair, which has sustained consistent losses since the financial year ended 31 March 2012 (FY2012),  has already undergone two rights issue exercises since its listing. My fellow contributor Sudhan talks about Tigerair’s latest rights issue  in his article published a week ago.

In order to keep the company afloat, Tigerair is not only asking for a cash injection from its shareholders (in the form of the rights issue), but it is also planning to sell its remaining 40% stake in its Australian unit to Virgin Australia Holdings for only A$1.00. Tigerair has already closed down its Indonesian unit abruptly and sold its Philippines-based business. If the sale of its Australian operations goes through, the low-cost carrier would only have its Singapore-based operations.

Foolish Summary

The airline business is a commodity-like business. Airasia Bhd co-Founder, Mr. Anthony Fernandes, is known to have mentioned frequently that being a low-cost provider is the most important aspect of being an airline. Yet, as Tigerair trims its scale of operations, it seems highly unlikely that it will be able to achieve the cost benefit of having economies of scale which comes with being a larger airline.

Without the ability to be a low cost provider in the region, how is Tigerair going to compete in its highly competitive business environment? As such, Tigerair’s survival at the moment hinges on the “silver spoon” effect of its richer parent, Singapore Airlines.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Airasia Bhd