Singapore Airlines stunned the market yesterday with the dramatic news that it has made a $453 million takeover bid for loss-making Tigerair.
It plans to delist and privatize the carrier, and drive closer cooperation and integration with the other airlines within the group, including regional arm SilkAir and long-haul budget arm Scoot, amid intense competition from rivals.
No jobs will be lost, said SIA chief executive Goh Choon Phong.
SIA, which owns 55.8 percent of the budget carrier, is offering other stakeholders 41 cents a share - a 32.3 percent premium to the closing price of 31 cents on Thursday.
The $453 million buyout offer was made early yesterday following a request by the two carriers to the Singapore Exchange for a trading halt. Tigerair shareholders also have the option of subscribing for SIA shares at $11.1043 each, slightly below Thursday's closing price of $11.15.
Mr Goh stressed that there will be no job cuts when he spoke to the media yesterday during his annual half-year results briefing.
"This is about growth. It is not about reducing operations or cutting back so, therefore, there is no plan for any staff retrenchments."
In a note to staff - possibly to allay any such anxiety - Mr Goh said the airline's investment in Tigerair provides "an additional engine of growth in an expanding segment of the air travel market".
"This ultimately strengthens the SIA group. I also wish to assure you that we remain fully committed to the further growth of the full-service side of our business, which we continue to have full confidence in."
Mr Goh cited SIA's "significant investment" in new aircraft, new product and service initiatives, new lounges, large-scale IT systems and in its staff.
A similar notice explaining the rationale behind SIA's move and plans for Tigerair and Scoot to work even more closely together went to Scoot's staff.
SIA's involvement in Tigerair started with a 49 percent stake in the carrier, which launched its first flight in September 2004.
The shareholding was later diluted to about a third when Tigerair went public in January 2010.
SIA's stake subsequently went up to about 40 percent and then to 55.8 percent after Tigerair's cash call to shareholders late last year.
The budget carrier did well at first and set up an Australian affiliate and joint venture companies in the Philippines and Indonesia.
But the tide changed after it went public in 2010 with profits battered by intense competition and overcapacity in the market pushing yields down.
Tigerair has been operating in the red for most of the past five years, although losses have narrowed.
The airline has been working closely with Scoot in recent months to coordinate flight schedules and routes to grow the number of connecting passengers through Changi Airport.
Mr Goh said that while Tigerair has done well to restructure and improve its financial position, its development potential is limited without deeper integration with the SIA group to build a strong foundation for long-term growth.
Mr Timothy Ross, a Singapore- based analyst at Credit Suisse Group, said: "The move by SIA speaks to the fact that the airline is beginning to get its mojo back... and becoming master of its own destiny rather than just reacting as it has done to the numerous body blows it has received in the last five years or so."
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