AGENCE FRANCE-PRESSE

SINGAPORE Airlines (SIA) is finding itself in unfamiliar territory after interim profits nosedived as a result of a global aviation slowdown aggravated by the terrorism crisis.

SIA net profits plunged by 88.2 per cent year on year to S$134.8 million for the half year to September and the once-unthinkable prospect of a full-year loss is on the horizon.

Analysts said SIA would be hard-pressed to deliver profits in the financial year to next March.

"Since their listing [in 1985], this is the first time they are staring at the possibility of going into the red," said Chew Li May, an analyst at Indosuez WI Carr.

Unlike the 1997-98 regional crisis, which affected mainly Asia, the airline now has to contend with the repercussions of the September terror attacks in the United States and global travel slump, Ms Chew said.

"This time round, it is not just the recession at home," she said, referring to forecasts that Singapore's gross domestic product would shrink 3 per cent this year from 9.9 per cent growth last year.

"We are also looking at a global recession and the added fear of flying because of the September attacks," said Ms Chew.

She predicted that SIA would post a net loss in the present fiscal year of about S$40 million, compared with a S$1.55 billion profit in the previous year.

Andrew Tan, aviation analyst at ABN Amro Securities, had an equally bleak prognosis but stressed that the woes surrounding the company were beyond its immediate control.

"The outlook for the next six months is going to be one of the toughest ever in the airline's history," he said.

"It is an industry downturn, not a company problem. There is no question about the quality of the company," said Mr Tan.

Last month, SIA admitted its perfect record was in danger after announcing the sharp drop in interim earnings.

"These are the most difficult conditions that the SIA Group has had to face, and maintaining its loss-free record this year will be a challenge," the carrier said, warning that worse was in store.

"The second half of the financial year, October 2001 to March 2002, will bear the full brunt of the terrorist attacks in the US on 11 September," it said.

A host of cost-cutting measures has been initiated, including a deferment in the delivery of 10 Airbus jets, due to start arriving from January 2003.

The aircraft are intended for transpacific routes between Singapore and the west coast of the US, and the deferral came after SIA said it was reducing services to the US, Australia, Japan and Taiwan.

SIA, at its peak one of the world's most profitable airlines, has 98 aircraft, including freighters. It had planned to increase the fleet to 106 aircraft by next March.

A freeze on hiring is already in effect and managers have taken pay cuts of between 5-15 per cent. Non-essential projects have been postponed or cancelled and staff will not receive bonuses this year, after getting four months' worth of bonuses last year.

However, are these measures enough to ease the carrier's haemorrhage?

"It is going to be helpful, but it won't be enough to prevent a loss. But it is necessary and it is mitigating," said Mr Tan.

Kevin Scully, managing director of research house Net-Research.com, said "the second half will be worse" for SIA.

"Globally airlines are facing an uncertain future, and we need to see if there is a recovery in air travel," said Mr Scully.