In the early afternoon, Deputy Prime Minister Heng Swee Keat announced an unprecedented $ 55 billion resilience budget to help Singaporeans and local businesses cope with the effects of COVID-19.
Part of this budget – up to S $ 17 billion – is drawn from the Republic's previous reserves, which is usually only justified in exceptional times.
President Halimah Yacob herself has described the current situation as an "unprecedented and unprecedented crisis".
The only time the national reserves of the past were drawn was during the financial crisis in 2009.
The resilience budget, including the 2020 budget announced five weeks ago, accounts for 11 percent of Singapore's GDP.
As part of the announced budget, Singapore will provide assistance to support the severely affected Changi Air Hub.
For every local worker in the aviation industry, aviation companies like Singapore Airlines receive one 75 percent wage compensation for the first monthly salary of S $ 4,600.
There will also be one S $ 350 million enhanced Aviation Support Package for discounts on landing and parking fees, rent relief for airlines, ground handlers and freight agents.
Aid to SIA and the aviation industry Ascend again
In his resilience budget speech, Minister Heng outlined the various reasons why the government is supporting the heavily affected aviation industry, notably mentioning the national airline Singapore Airlines (SIA).
According to Heng, the travel industry has been hit by one of the greatest shocks in history since the outbreak of the COVID-19 virus.
National borders are closed and since March 24, 2020 daily passenger traffic in the Changi Air Hub has dropped by a worrying 90 percent.
The Changi Air Hub is known to be an important pillar of Singapore's economy and contributes to over 192,000 jobs. Together with its secondary industries, it contributes to over 5 percent of Singapore's GDP.
As a result, a diminished national airline will undermine Singapore's ability to recover from the crisis. This is particularly important because Singapore, which operates as an open economy, is heavily dependent on global trade.
SIA could run out of money without government support
To understand the financial impact of the COVID-19 virus on SIA, we can look at the company's latest financial report.
According to SIA's third quarter income statement, which ends on December 31, 2019, here are some costs that are covered by the latest resilience budget:
|Line item||3rd quarter 2019/20|
|Fuel costs||S $ 1,207 million|
|Personnel costs||S $ 773.6 million|
|Landing, parking and overflight fees||S $ 228 million|
|Total sales||S $ 4,470.6 million|
|Total expenditure||S $ 4,022.1 million|
|Profit before taxes||S $ 397.9 million|
|Bank balances||S $ 1,571 million|
|Commercial debtor||S $ 1,244.6 million|
If SIA's capacity is reduced by up to 95%, it means the company's revenue will decrease accordingly while incurring fixed costs such as personnel costs and landing fees.
A 95% drop in sales results in sales of only S $ 223.5 million compared to spending of S $ 4 billion in the previous quarter.
S $ 1.5 billion in cash cannot support quarterly spending of S $ 4 billion, resulting in SIA running out of money.
If the government has not intervened to save SIA by helping to absorb some of the personnel costs and landing fees, SIA will need to take other capital raising measures such as issuing bonds.
Minister Heng also noted that SIA announced earlier today that it will soon make an announcement after today's freeze.
"With government support for the aviation sector and, if necessary, more direct support measures, we will ensure that SIA can weather this in good shape," said Minister Heng.
“Ultimately, it is about maintaining the status of our air hub so that we can emerge stronger from this crisis. It takes patience to break out of this storm … I am sure that our air hub will be stronger, ”he added.
While SIA is undeniably important to Singapore's economy, the government's support and rescue announced in this resilience budget is at the expense of drawing on Singapore's previous reserves.
SIA must take responsibility to ensure that the grant received is used properly. Jobs should be preserved as much as possible, and the cost savings should not end in remuneration for management or in the payment of dividends from shareholders.
Hopefully, when the recovery comes, SIA will emerge stronger and help drive economic growth in Singapore.
Until then, Singapore will benefit from this depletion of reserves, which has been painfully built up by many generations of Singaporeans.
Selected image source: Airline Reporter