Tony Davis, the boss of Singapore Airlines’ low-cost carrier Tiger Airways, is due to leave the company on Nov. 1, a decision that could end up costing the airline dearly.
Minority shareholders may be happy to see Davis go. Tiger listed on the Singapore stock exchange on Jan. 2010 at S$1.50 ($1.25) a share. The shares rose for a period after the IPO, but since then Tiger’s share price has plummeted. On Aug. 25 of this year – when the share price was languishing at 96 Singapore cents a share - Tiger announced a rights to raise cash to help finance aircraft on order.
This is terrible news for minority shareholders. Basically, they have to put more money into the business and if they fail to come up with the cash, their equity in the business will be diluted. The price of existing shares will also be devalued by the issuance of the new shares.
Shareholders will be asked to vote on this rights issue at an extraordinary general meeting which will be held in the coming days. Having Davis front that meeting would have been asking for trouble. But now it is clear he won’t have to take so much shareholder heat, because Tiger announced on Aug. 29 that Davis has resigned and will be leaving on Nov. 1 of this year. Davis’ replacement is long-time SIA executive Chin Yau Seng who had in fact already been appointed group CEO of Tiger in an acting capacity. Now that Davis is leaving, Chin gets the job on a permanent basis.
The problem with Davis leaving though, is that he is the one that instigated all the overseas joint-ventures that Tiger is about to embark on, namely the buy-in to Filipino carrier Seair, the tie-up with Indonesia’s Saratoga Group to re-launch defunct Indonesian carrier Manadala Airlines and the move to start Thai-Tiger, a low-cost carrier joint-venture in Bangkok with Thai Airways International.
All of these joint-venture partners know Davis, but they don’t know Chin. And in the case of Saratoga Group and Thai Airways, they may not care to know or want to be associated with SIA.
There’s also the human aspect to all this. Chin is probably thinking 'why should I bust my gut trying to make all these JVs work?' 'It just means more work for me and there’s a high probability some will fail.'
I’m not necessarily saying this will happen. But I wouldn't mind betting Chin will come out and say something along the lines that ‘we need to get our own house in order first, before we start expanding aggressively overseas’. ‘Lets first look to build the Singapore low-cost carrier and fix the problems in the Australian operation, before venturing into other Southeast Asian markets’.
Certainly, this line of argument can be justified. And it would make Tiger a lot easier to manage. But it would come at a huge opportunity cost. Davis appears to have found some good overseas joint-venture partners for Tiger. If Tiger fails to seize the opportunity now, then it can kiss goodbye to any hope in future of becoming a pan-Asian carrier.