Good morning, everyone. I'm Siva from the Singapore Airlines Public Affairs Department. I hope everyone is well today. Welcome to our Fiscal Year 2020/2021 Media Analyst Briefing. Given the COVID-19 measures that are in place, we are unfortunately unable to meet everyone in person once again. We hope that this virtual session that we have organized will be useful. Today, we will have two presentations. First, Mr. Stephen Barnes, Senior Vice President, Finance, Singapore Airlines, will present the group's full-year results. Next, our Chief Executive Officer, Mr. Goh Choon Phong, will talk about the outlook and strategy for the group. Following that, we will have a short question and answer session. Without any further ado, I would now like to invite Mr. Barnes to make his presentation. Mr. Barnes, please.
Thanks very much, Siva. Good morning, CEO, EVPs, and indeed to everyone who's joined us on the call today. I can't honestly say that it's my pleasure to announce these results, but it's useful to me to present them. I'm looking at slide three. The unwelcome headline of a SGD 4.3 billion net loss for the SIA Group reflects what has obviously been a very challenging year. The Group registered an operating loss of SGD 2.5 billion for the financial year, which reflects the plunge in passenger traffic caused by the COVID-19 pandemic and the consequent restrictions on international travel, partially mitigated by a very strong showing in cargo traffic. The net loss for the financial year was SGD 4.3 billion due to the weak operating performance and also to SGD 2 billion of non-cash impairment charges.
In view of the continuing uncertainties over the recovery journey, SIA proposes to issue MCBs that will raise liquidity and equity capital and thereby strengthen the group's financial position. Go to slide four. The operating result for the financial year FY2021 swung from a small operating profit last year to a SGD 2.5 billion operating loss for the full year in 2021. Total revenue plummeted by more than SGD 12 billion or 76%, while total expenditure reduced by only SGD 9 billion or around 60%. By way of a recap, I'd like to focus on the full year's fuel hedge ineffectiveness charges and fair value gains on fuel derivatives. By way of a reminder, with the decline in passenger traffic, the group has made downward revisions to the passenger capacity recovery trajectory during the year.
This results in mark-to-market losses of SGD 497 million when we de-designated the fuel hedges that were deemed ineffective. These fuel derivative contracts have been revalued periodically to account for further changes in their fair values. This has resulted in a net gain of SGD 283 million, primarily due to the upward trend in fuel prices in the second half of the financial year. The net cost of these effects was SGD 214 million. I'm going to compare the second half with the first half, which is not shown on the slide, so please bear with me. From the first half to the second half, revenue actually rose by SGD 547 million or over 33%. Expenditure, excluding the fuel ineffectiveness, rose by only SGD 247 million or around 8%.
This is very encouraging and it contributed to the improvement in the operating loss in the second half, which narrowed to SGD 650 million compared with the first half's operating loss of SGD 1.86 billion. Moving on to slide five. You can see that group revenue was down really throughout the year by way of a step change, but down by SGD 12.2 billion. Group revenue for the fourth quarter amounted to SGD 1.1 billion. Although this was down SGD 2.1 billion year-on-year, it struck a firm note compared with Q3.
On slide six, we look at revenue. The revenue decline of SGD 12.2 billion was attributable to really in whole the lower passenger flown revenue, which was down by SGD 12.2 billion, but actually down 95% year-on-year. We have gradually grown the size of our network and flown capacity.
We started the financial year with only 18 destinations for the group, passenger capacity in April 2020 was only 3% of pre-COVID levels. As we mounted more flights, passenger capacity reached 23% of pre-COVID levels by the end of March, and the number of destinations reached 60%. For the full year, passenger capacity was down 87%, although passenger carriage plummeted nearly 98%. That led to very low load factors and a decline in flown revenue, as I've mentioned, of 95%. Thankfully, cargo flown revenue was much higher, up over SGD 750 million or nearly 40%, driven by a stronger cargo yield performance, partially offset by a decline in loads carried. We've seen strong air cargo demand, especially in key segments such as e-commerce, pharmaceuticals, and electronics. This provided strong support for both cargo load factors and yields amid tight industry cargo capacity.
Lower engineering services revenue was largely attributable to a reduction in airframe and line maintenance revenue, as demand for maintenance services dropped drastically with the lower level of airline operations globally. Other passenger revenue and other revenue were also significantly down year-on-year. Slide seven. Group expenditure for the fourth quarter was SGD 2.5 billion lower year-on-year and amounted to SGD 1.4 billion. For the full year, expenditure was down nearly SGD 9.6 billion or 50% year-on-year. This sequence makes it appear that we steadily drove down costs, despite the fact that from the first quarter, Q1 to Q4, we grew capacity by seven times, we grew passenger traffic by 10 times, and we grew cargo capacity by 80%.
If I move on to slide eight, I think it's worth excluding the impact of fuel hedge ineffectiveness and the fair value gains and losses on fuel derivatives to reveal the underlying expenditure. As you can see, and as expected, as we gradually grew capacity, expenditure rose. However, expenditure from Q1 to Q4 only grew by 15%. This is obviously a different order of magnitude to the growth in capacity and traffic. Consequently, unit costs are being driven back down as we expand. Let's turn to costs on slide nine. Fuel cost after hedging reduced by SGD 3.6 billion or 78%. This is driven primarily from lower volume uplifts, but also by a lower weighted average fuel price before hedging. We'll take a quick look at this in the next slide.
Another very significant reduction in costs came in the category of staff costs, down SGD 1.4 billion or by more than half. Lower pay and allowances came about through a whole variety of staff cost management measures, but also from grants received under COVID-19 government support schemes. The other large contributor to the reduction was lower crew allowances, and this came about as a consequence of the plunge in flying hours due to capacity cuts. Let me focus on depreciation and leased aircraft charges, which reduced by only SGD 140 million or 6% or so. These are fixed costs tied to the size of our fleet. While aircraft were returned to lessors or retired, we also took delivery of a number of aircraft that could not be deferred.
Indeed, the full impact of depreciation on new aircraft that were delivered in the prior year, that is financial year 2019/2020, was the largest growth item in this category of expenses. I mentioned MRO costs. These have fixed components in them, but also variable components. We did incur lower component airframe maintenance and engine maintenance costs across all three airlines as a consequence of the lower overall flying activity. Other expenditure dropped also generally by 70% or more due to significant capacity reductions.
Moving on to slide 10. Very quickly to just give you an impression of the reduction in fuel costs. It really reflects the severe capacity cuts and hence fuel consumption and lower fuel prices, which were partially negated by higher fuel hedging losses. Moving on to slide 11, operating profit. The operating performance for the financial year was SGD 2.57 billion lower year on year.
You can readily observe that operating losses in the second half were lower compared to the first half. You can also see that the operating losses in Q3 and Q4 were pretty stable. On slide 12, I think in the interest of full disclosure, it may be worth reviewing the effect on operating performance from fuel hedge ineffectiveness and fair value gains and losses on the fuel derivatives. What I think you can see here is that in the first half, the effect of ineffectiveness and revaluations was negative. In the second half, the effect was positive. That means that the underlying operating losses in Q3 and Q4 were greater than on the face of our P&L. Nevertheless, the underlying operating losses in the second half were 23% lower than in the first half, as group revenue grew by 33% and group expenditure rose by only 8%.
I'll also mention that in the same period, capacity grew by 150%. Slide 13. The tale of the group's operating performance in Financial Year 2021 compared with the previous year is dominated by a plunge in passenger flown revenue, partially offset by higher cargo flown revenue and by much lower net fuel costs. Fuel hedge ineffectiveness. This is the charge at the time when we de-designated additional fuel derivative contracts, and it was a lower charge than last year. Fair value gain on fuel derivatives reflects the fact that forward fuel prices increased from the end of September to the end of March, generating mark-to-market gains. Staff costs were significantly lower for the reasons I described earlier, and other contributors include lower handling charges, manning, parking, and overflying costs, and all the others that you can see here. Moving on to slide 14.
We saw earlier the key operating statistics for the main companies of the group. The narrative is similar for all the key operating entities. The airlines suffered a drastic drop in the amount of flying, causing a collapse in revenues. Expenditure was also cut significantly, but fixed costs mean that cost reduction was less than revenue reduction. As a result, the airlines all suffered losses. The same dynamic applies to SIA Engineering Company, whose revenues are largely tied to the amount of flying by its airline customers. One takeaway from this slide, if you compare the FY 2021 column with the second half of FY 2021, is that the operating performance of each company improved in the second half compared with the first half, reflecting growth in revenue as we reinstated capacity through the year, combined with efforts to reduce costs.
Slide 15 shows the quarterly performance at the net profit and loss level. Group net loss for Financial Year 2021 was SGD 4.27 billion, SGD 4.3 billion for short. The group net loss for Q4 was SGD 662 million, which interestingly perhaps, is SGD 72 million lower than last year. Those with sharp eyes may remember that last year, with the onset of the pandemic, we recognized a large charge of SGD 710 million for fuel ineffectiveness. I think I should spend a moment to explain the deterioration in performance between Q3 and Q4.
You may recall that Q3 and Q4 reported similar operating losses of around SGD 320 million- SGD 330 million. The net loss of SGD 662 million in Q4 was SGD 520 million above Q3. This is mainly due to two items. First, we recognized an additional aircraft impairment charge of SGD 286 million during Q4.
Secondly, we received a lower tax credit quarter-on-quarter by around SGD 207 million. Together, these explain close to SGD 500 million of the jump. Moving on to the waterfall describing the movement from FY 2019/2020 to the results in FY 2020/2021. It's really dominated by two features. First is the weaker operating results. Secondly, the impairment of 45 surplus aircraft. Other items. At the half year, we had impaired other assets, including the goodwill relating to Tiger Airways and SIA Engineering Company's write-down of a couple of its assets. We had higher net finance charges, we also incurred staff rationalization costs, a small loss on the disposal of aircraft. Lastly, we benefited from a higher tax credit. Other items relate mainly to the performance of some of our joint ventures, the divestment of Virgin Australia and NokScoot. Turning to the balance sheet on slide 17.
Changes in the balance sheet largely reflects the operating results, plus our efforts to place the SIA Group in a position of strength as we navigate the pandemic. I think you can see from these figures the growth in the equity base, the growth in liquidity, reduced liabilities, even with the growth in debt, and lower gearing. The reduction in NAV per share reflects the rights issue of ordinary shares in June last year. Finally, from me, slide 18 gives a snapshot of how we expect the fleet to develop over the coming year. We start the year with an operating fleet of 168 aircraft, of which 121 are in the full service carriers of SIA and SilkAir, and 47 are in Scoot. The table excludes 51 aircraft that are not part of the group's operating fleet.
Most of these are considered surplus, 41 of them, and have been impaired. Others have been purchased but have not yet entered service or were pending clearance to fly, as in the MAXs, or have been removed from service prior to delivery. I would now like to invite our CEO, Mr. Goh Choon Phong, to present the outlook and group summary.
Good morning, ladies and gentlemen. Welcome again to our Virtual Briefing. As what Stephen has mentioned, I'm on slide 20. As what Stephen has mentioned, this last financial year has been the toughest financial year that the SIA Group has in our history. It's not merely on the financial side, but in many ways, as I will point out later as well. It's useful to look back and see what SIA Group has been doing to not just manage this crisis, but to ensure that we continue to strengthen our fundamentals. On slide 22, let's go back to just before COVID-19 struck. As you may recall, just before COVID-19 struck, we were completing our three-year transformation program.
You can see on the slide there that we have established extensive global network with very strong partnership with other partner carriers, with strong presence of our own network to key markets that we serve. I'd like to point out particularly the two major markets in Asia, China and India, plus Southeast Asia, which is right around the neighborhood, and also our strong presence in Southwest Pacific. In all of those places, you will notice that we are either the number one or number two foreign carriers serving those places in terms of number of points served. For example, in the case of China, together with Scoot, the group serves 27 points, which is the number two carrier serving China in terms of number of points. As I mentioned also that we have established very strong partnership with key players around the group.
That includes Lufthansa, includes Air New Zealand, Scandinavian Airlines. Just before COVID, we announced our plan to have extensive deep cooperation with both ANA and Malaysia Airlines. We continue to upgrade our fleet, both in terms of new technology planes as well as product offerings. We launched the flagship product on our A380s. We introduced the 787-10, which serves largely medium-haul destinations with a full flat bed on our business class. In fact, at that point in time, I pointed out that it set the new standard for business class for service in the region and medium haul because the product that we use were products that some others were using for their long haul. We also continue to invest in our people, as well as allowing us to progress our service offering to our customers.
In that, we were looking at end-to-end seamless service to our customers, looking at all the touch points and how we can make use of technology to better understand our customers' needs and personalize our offerings. In that few years, we have also clearly established ourselves. We invested a lot in our digital technology, digital capabilities, and clearly established ourselves as one of the world's leading digital airlines. On slide 23, you see that we have actually completed successfully the merger between Tiger and Scoot. It's just Scoot in our portfolio, and we announced the integration of SilkAir back into SIA. This will allow for better synergy between the LCC and the full-service carriers and also alignment of offerings plus connectivity.
We continue to support and invest in the expansion for Vistara to go international, and we continue to look at deriving new sources of revenue from other businesses, such as the incorporation of KrisShop as a separate unit, extension of KrisPay offerings, setting up of simulator training centers with both Airbus as well as with CAE for Boeing planes. This will help to diversify some of our revenue bases beyond just revenue from flying passengers. On slide 24, you see that just prior to COVID, which is in the quarter 2019, October to December, we actually reported one of the best set of results in our history, including record revenue, one of the highest load factor, record passenger uplift, and indeed one of the highest operating profit in that quarter. Of course, we all knew that subsequent to that, COVID struck.
You may recall that COVID happened or began to feel the impact COVID when we saw the Wuhan closure, which was on the 24th of January. On the 25th of January, we already set up our crisis management to handle the disruption that event caused to our passengers. We knew from the experience of SARS that liquidity will be very important during this kind of period, this crisis. On slide 26, you can see that we have immediately reached out to our stakeholders and looked at how we can enhance our liquidity position. Of course, we subsequently knew that on the 26th of February, which is just over a month from the start of the Wuhan crisis, Wuhan closure, we announced with the support of our shareholders, the majority shareholder, Temasek, the plan to have rights and rights MCBs to achieve S$15 billion.
We're grateful that our shareholders have supported that. Looking back at that point in time, nobody could have known how long this crisis would last. We have chosen to take an approach of securing more resources in terms of financing resources with more liquidity, as opposed to going for a smaller amount, let's say SGD 3 billion or SGD 5 billion to tide over a shorter period. As you know, in the case of SARS, the impact was much shorter, but we thought it was more prudent to go for something that would potentially give us ability to handle a crisis that might last longer. The SGD 15 billion, we're very grateful for our majority shareholder support. That SGD 15 billion is an injection of confidence that also enabled us to secure more financing at favorable terms.
As you're aware, we went on to secure financing of SGD 2.1 billion. We have another SGD 2 billion raised in bonds and notes, and recently we have announced the sale and leaseback transaction that gave us another SGD 2 billion. At the same time, we're able to renew all existing committed lines of credit, plus securing additional lines of credit. Today, we have in total uncapped lines of credit, committed lines of credit to a tune of SGD 2.1 billion. Of course, as Stephen has mentioned, we have announced that we'll be actually raising additional MCBs up to SGD 6.2 billion, the remaining of the SGD 15 billion that was approved by the shareholders last year.
We have also reached out to OEMs. At a point in time, very early on during the crisis, in fact, in early February, to start talking about the possibility of deferring aircraft and with it deferring payment.
We started the conversation very early because we felt that it is useful to prepare the OEMs of a potential scenario that we may have to do something massive. As it turns out, it does require us to relook and do something fairly comprehensive, and that, at the end, allow us to defer about SGD 4 billion in CapEx expenditure for the first three years. We have to, unfortunately, also take the measure of reducing our staff positions. About 20% of the positions were cut, and we have to say goodbye to many of our dedicated staff who have been with us for a long time. At the same time, no effort was spared to look at what else we can do to ensure that we keep expenditure in check.
As you can see earlier from Stephen's presentation, that we have controlled our unit costs in a, I would say, fairly favorable manner. While we were doing that, raising cash, ensuring that we are managing our costs well, our team were in parallel looking through the entire travel journey, all the touchpoints, to look at what else we can do to ensure that our customers and our staff are adequately protected. As you know, COVID has introduced quite a lot of frictions in the travel journey for people, as well as health safety concerns. We had the benefit of doing the end-to-end journey review earlier, even before COVID. We're able to use that framework to look at what are the points that could potentially be affected because of COVID and address them.
In the process, we identified more than 100 touchpoints that we could potentially improve for the benefit of health safety concerns and also to remove friction. I think we have received good response and feedback from customers who appreciate what we have done. We have continued to push for use of technology during this process, including piloting with bodies to look at digital health certificates, and that includes also our pilots with IATA. All these efforts were recognized for both Scoot and SIA, by APEX and SimpliFlying, giving us the rating of the diamond, which is the highest rating that they give for health safety concerns. We work very closely to communicate to our people on the benefit and the usefulness of getting vaccinated so as to protect both themselves, our people, their family, and also our customers who come in contact with our people.
98% of our operating crew, both pilots and cabin crew in our group, and that includes SilkAir, that includes Scoot. 98% of that population have actually signed up for vaccination, and 96% have gotten fully vaccinated, meaning two doses of vaccine. I would say that this is one of the highest I'm aware of among airline industries, and I think it provides great comfort to both our people and our passengers when they travel with us. This is slide 30 now. As what Stephen have mentioned earlier, throughout this crisis, we were always looking for opportunities to expand our network. This network is supported not merely by passenger, and passenger is not merely OD, but also transfer passengers because they can connect places to Singapore. At the same time, it is also supported by strong cargo demand that allow us to carry cargo in the belly hold.
We are fully supportive of a calibrated and safe manner to open the borders. As you can see, we participated in the RGL, UO, and also the discussion and preparation for travel bubbles. Cargo has been a bright spot, it continues to see strong demand over the next couple of months at least. We were one of the earliest to capitalize on that by operating passenger aircraft on cargo mission, as well as reconfiguring the cabin by removing wide-class seats from certain airplanes and allowing for more cargo carriage. Cargo has also been proactive in getting the necessary certification to allow them to carry more pharmaceutical products as well as fresh produce. While we're doing all that, we have not forgotten the community that we operate in. We not just make sure that we're capable of transporting vaccines.
We're very happy to be able to play a part in supplying vaccines, not just to Singapore, but to also other countries. We also participate in humanitarian initiatives to bring essential medical supplies and other things, produce goods to countries that require them. In fact, in the recent case with India, we also participated in the transport of oxygen concentrator and ventilators to India. We also are proud to be able to play a part in helping to bring loved ones home for our passengers. You may recall that in Singapore, for example, many of the students were initially stuck in, particularly U.K., in U.S., in Australia, and we're very happy to be able to bring them back to their family in Singapore and or elsewhere in the world that they would travel to.
We are also very proud that our staff have volunteered to take part in the fight against COVID-19 at the frontline. We have staff in various ambassador schemes, including care ambassadors, meaning working alongside nurses and doctors, taking care of patients in the hospitals. Again, during COVID-19, we continue on with our strategic initiatives, and we have largely completed in the last final stages of integration between SilkAir and SIA. That gives us eventually to have just two separate airlines, one focusing on full service and the other on budget travel, and giving us the flexibility, depending on the demand, to deploy accordingly. We continue to support Vistara in its expansion plan. At one point during the early part of this year, Vistara was actually operating almost 80% of its pre-COVID-19 capacity for domestic operations.
Of course, with the situation in India now, that has come down to between 25%-30% of pre-COVID capacity. India, in the longer run, would still have huge potential for growth, and we continue to believe that this will be an opportunity for us to further our expansion. We continue to invest in new businesses that we set up before. In fact, we managed to increase the number of KrisFlyer members even during the pandemic when very few were traveling. We tied up even more partners to allow for non-flight redemptions. KrisShop has pivoted very successfully to e-commerce even with very little flying, which KrisShop was depending on in the past for revenue on board sales. It's now generating a huge part of its revenue in e-commerce.
This will be something, a skill set and a market that KrisShop will continue to build beyond the pandemic, even when flying returns and that additional revenue opportunities. During this whole pandemic, we continue to look at what other new opportunities and ventures we could introduce. What is shown here, SIA Academy, Pelago, and Parxl were all announced before. I'd just like to say that the SIA Academy, for example, we have received very strong response. More than 300 organizations have approached us for possibilities to cooperate. We continue to pay a lot of attention to the environment and sustainability in general. Even during the pandemic, we continue to invest in this area. We have, as we have announced before, converted the serviceware for short-haul operations economy class to paper-based.
That allow us to not only make it more, because it's biodegradable, not only make it more sustainable from a material perspective, but also reduces the weight carried on the plane, which in turn reduces the carbon emission because it burns less fuel. It's good for the environment. It's also cost-effective for us. We completed the installation of solar panels in December of last year for all our offices, and we expect that to generate enough electricity supply for, let's say, about 2,300 4-room HDB flats for a year. Again, during all this time, we actually did not slacken. In fact, we have pushed even harder for upskilling and reskilling of our people. Of course, because of pandemic, physical training, physical get-together training hasn't been possible or much reduced, and we have pivoted very well into e-learning and e-courses.
That has brought about even more learning opportunities for our staff. We know that all this training will be put into good use when the pandemic is over, and our staff are all very well-equipped to manage in the new economy. Now, all of those things I mentioned were actually part of our new transformation program, which is all about leading the new world. This is slide 38 I'm referring to. Here are some of the tangible numbers reflecting what we have been doing to ensure that we make use of this period to strengthen ourselves, not just financially, but with respect to the organization, our people, and make sure that we are ready when the traffic finally recovers.
This is slide 39, which is my last slide. As you can see, even before COVID, we've been building all these capabilities. The financial strength, we've always had a great branding. We have a strong digital capability that we built up, and we have always had skilled and talented people. We have done more to develop all these areas, as I've mentioned earlier, even during this pandemic, and we believe that all this will actually be a strong foundation that we can make use of to ensure that we can transform ourselves yet again and lead in the new world. Thank you.
Thank you, Mr. Goh. We will now move on to the question and answer segment. For this, Mr. Goh and Mr. Barnes will be joined by Mr. Mak Swee Wah, Executive Vice President, Operations, Mr. Lee Lik Hsin, Executive Vice President, Commercial, and Mr. Tan Kai Ping, Executive Vice President, Finance and Strategy. We have just over 30 minutes. We have many participants. As always, we'd appreciate it if you please try to limit yourself to one question. If you could please try, we'd appreciate it. Thank you. If you'd also identify yourself before each question, that would be useful. Rishi, over to you for the first question.
Thank you. Once again, as a reminder, to ask a question, you will need to press star one on your telephone, and to withdraw your question, please press the pound key. We have the first question from the line of Chen Chuanren from Air Transport World. Your lines are open.
Good morning, Mr. Goh, Siva. It's Chuanren from Air Transport World. Sorry to break the rule. Two quick questions. Firstly, do you think this SGD 4.3 billion loss is the lowest you can go? I mean, with all the aircraft impairment all being identified, do you expect things to go better from the year forward? That's question one. Question two, I'm very curious, what are your financial obligations for the F1 Grand Prix as title sponsor? In other words, are you still required to pay SGD millions in sponsorship fees should the F1 go ahead in Singapore? Thank you.
I'll just take the second question, Kai Ping, you can just address the first one. The Grand Prix. I don't think it's a decision we will need to confront at the moment because whether it's on or not is still a question mark. Let's see what happens on that, then we can address that question accordingly. Kai Ping?
Thank you for the question. I think we are certainly working on that basis. For the financial year just passed, FY 2021, the net loss level, the large portion, SGD 2 billion or so, is non-cash impairment charges. We don't foresee impairment charges of this size as we move forward in the current financial year at this point .
Thank you, Kai Ping. Next question, please, Rishi.
Next question is from the line of James Teo from Bloomberg. Your lines are open.
Hi, good morning, everyone. I'm James Teo from Bloomberg Intelligence. My question is on aircraft. There's actually two small questions. One is, what are your plans for all the impaired aircraft? Does it have anything to do with the Temasek and ST Engineering joint venture on P2F conversion as well as leasing? What kind of impact could that have, even if it's nothing to do with the impaired aircraft? What do you think in a potential cooperation with ST Engineering on that aspect? Second quick question is on sale and leaseback. What is the limit in terms of would you be open to doing more? Is there a target or maximum in terms of percentage of fleet that could be encumbered? Yeah, that's all. Both on aircraft. Thank you.
Okay. I will just take a quick response at this point here to your questions on P2F. As you know, we look at aircraft requirements all the time. Of course, cargo is strong at this moment, and we have maximized our use even of the passenger planes to meet existing cargo demand. We will continue to review our fleet requirements, and when there is some decisions that we will have made, we will certainly announce it. Kai Ting?
Thank you for that question. The airplanes that have been impaired are in relation to planes that we are taking out of fleet and do not expect to operate again. That's the basis. Yeah.
Thank you, Kai Ting. Next question please, Rishi.
Next question is from the line of Gregory Waldron from FlightGlobal. Your line is now open.
Oh, sorry. Just hold on a minute, Greg. I got a bit ahead of myself. We've got Stephen to answer the question on sale and leaseback.
Okay. Again, this is really part of our ongoing review of opportunities. Let me step back and actually give you a slightly broader answer. I think you've seen over the course of the last 15 months that we have sought to engage and draw funds from three main markets. It includes the bank market, it includes the debt capital markets, and it includes the leasing community through sale and leaseback transactions. We think that going forward, all three are important to us, and we'll look to use or engage with those markets on an ongoing basis. We do not want to exhaust demand in any of those markets. We'll keep a close eye on what sort of demand there actually is and what the opportunities might be. Which frankly, we expect will fluctuate over time. There'll be different opportunities at different times.
Thank you, Stephen. Sorry, Greg. If you could go ahead, please.
Hi. Good morning. Thanks for taking my question. This is Alfred from FlightGlobal. I just wanted to ask a question about the fleet, and this is pertaining to the 737 MAXs. I saw on the slides that SIA will be taking delivery of eight 737 MAXs in the current financial year. Could you elaborate when you expect these aircraft to be delivered? Is this also your projection in terms of when the grounding of the MAX aircraft will lift? Thank you.
Thank you for the question. This is Tan Kai Ping. The 737 MAX has not been ungrounded yet in Singapore and in a couple of jurisdictions where SIA looks to operate them. We will await the decision of the authorities, and we are working closely with all the relevant authorities. As far as the flight, I think you're referring to the slide 18 in Stephen Barnes's deck just now on the delivery plan. That is as the current stand. Obviously, these things will change as we move forward, depending on what happens with the ungrounding status as well as our ongoing discussions in relation to the impact of COVID-19 also on production and everything else. Okay. This is right now what's our plan. We have to see as we move forward what exactly happens.
Thank you, Kai Ting. Next question please, Michelle.
Next question is from the line of Ajith from UOB. Your line is now open.
Hi. I've got two quick questions. One is to Stephen. This is with regards to the interest on the MCBs for FY21. Just wanted to check whether this was recognized in P&L or in reserves. Second question is to Mr. Goh. I noticed that the CapEx for FY21 was significantly lower than what was guided, which is positive. Going forward is there a possibility for further reductions in CapEx? I'm aware that you have already guided for a SGD 4 billion in reduction in CapEx. Just trying to get a sense on whether there's scope for further reductions. Thanks.
Okay. I'll take that question first . What we have achieved, we announced, which is the $4 billion. Of course, you can assume that we continue to look at what ways to manage our cash flow and where necessary, we'll certainly look at what else we can do with respect to CapEx. At this point in time, it's $4 billion.
Okay.
On the MCBs, it's equity. The interest will, to the extent that there is interest on the MCBs, it will accrue all the way through to maturity. At maturity, the accreted amount will be converted into shares. What that means is that there will never actually be any interest paid. There will only be interest paid in the event, or recognized, I should say, in the event that we redeem the MCBs. The current position is that there is no charge to P&L on the interest. There is also no accrual of interest expense in reserves. If at some point there is a decision to redeem or a plan to redeem the MCBs, we need to re-look at this with our auditors. It is possible that we would need to recognize in reserves the accreted interest. I hope that helps.
Yes. Thanks.
Next question please, Rishi.
Thank you. As a reminder, to ask question, you will need to press star one and wait for your name to be announced. The next one is from Louis Chua from Credit Suisse. Your line has been opened.
Hello, good morning. I've got one slightly long question basically on cash flow and also following up to Ajith's question. In terms of the CapEx, can you share with us right now what is the total outstanding over the next couple of years, including those that have been deferred to the SGD 4 billion that you mentioned that have been deferred to a later time? With the continued opening up of the network in terms of your expectations of the pre-COVID levels of passenger capacity, how should we be thinking about the monthly operational cash burn as you start to open up to more places and some guidance of what that monthly cash burn would be would also be helpful.
Okay. Two parts. I'd say that in two parts, really. The guidance that we've already provided in respect of CapEx in February, is not changed. It's in the region of SGD 4 billion in each of the next couple of years. As far as the cash burn is concerned, let me go back a little bit to, say, this time last year. Our cash burn at that point was SGD 350 million. Operating cash burn was about SGD 350 million monthly. By the half year, we'd been able to reduce that to around SGD 250 million. Sorry, SGD 300 million. By February, we were able to announce that we were at SGD 250 million and heading south. Guidance that we would give currently, is that we're in the SGD 100 million-SGD 150 million operating cash burn range. There are things that can change that picture.
One of the items which is self-explanatory is the oil price and settlement of fuel hedges. At the moment, based on current prices, that's where we see ourselves being.
Thank you, Stephen. Next question please, Rishi.
Next question is from Ian Wong from UBS. Please proceed with your question.
Hi, guys. Ian Wong, UBS. Thanks for the presentation. Just a quick follow-up on the question before. Can we maybe talk a bit about the expectations of within that 32% pre-COVID capacity by July? Conscious of the fact that there are some COVID-19 flare-ups across parts of Asia. Just any guidance in terms of the destinations that are being tracked in the 32%. Also if there, I guess, a stronger yield potential for those new destinations relative to what we saw before. Thanks.
Okay. I will invite my colleague, Lee Lik Hsin, to respond to that question.
Yes. Our guidance is for the group capacity to reach around 32% of pre-COVID-19 levels by July. To the point about whether or not the current flare-up is going to impact this, we think that much of this is actually backed by the cargo demand that has been mentioned by both the CEO and Stephen Barnes. That continues to be robust, and we believe this is the right level that we can operate at around the July timeframe.
Thank you, Lee Lik Hsin. Can we have the next question, please, Rishi?
Thank you. The next question is from Raymond Yap from CIMB. Please proceed with your question.
Yes. Hi. This is a question for Stephen. Stephen, you're taking a lot of new aircraft this year. For the ones that you are going to own, do you actually need to depreciate them, or do you put it in cold storage so that you don't have to depreciate them? Just wondering the impact of taking these deliveries at a depreciation sense. Also another question on the ineffective fuel hedges. Given what we're seeing now in terms of the increase in the credit hedges around the world, do you need to reclassify more of your hedges as ineffective?
Yeah. I'll take the question. I think I'll take the question on aircraft first. When the new aircraft comes in, our intention is to operate them. The reason is really quite simple, because the airplanes that are new is more efficient and actually cost less to operate. Really simple. A good angle operation. Stephen can take the fuel.
Sorry, could you repeat the second question, Raymond? I'm so sorry.
No worries. Because the ineffective fuel hedges, do you foresee that you need to reclassify more of the hedges as ineffective and put the derivative gains or losses into your P&L, given that we're seeing a jump in new credit risks around the world?
Sorry. I apologize. I'll have to ask you to repeat. The answer is, we have done a recent review as part of our closing, to be honest, with the financial year. We've done a recent review, fairly robust discussion, we are satisfied that we do not need to recognize any new hedges as being ineffective now or in the foreseeable future. That isn't to say that it is impossible. If the rate of recovery of capacity slows down more than expected, it is possible that we will have to recognize additional charges. We do have cushion, at this point, we're not expecting anything. There are hedges which remain outstanding in our books, which are no longer deemed to be hedges. They're now sitting as derivative contracts in our books. They will be revalued on a monthly basis.
For the remainder of this year, there is potential for gains and losses on those hedges. Now, that's clearly a position that we're looking to manage, and so we will continue to do so in order to minimize any potential adverse effects.
Thank you, Stephen. Can we have the next question, please, Operator?
The next question is from the line of Ven Sreenivasan from SPH Media. Your line is now open.
Okay. Actually, my question was already answered by Stephen just now. I basically wanted some outlook on cash burn. You have said that you're at SGD 100 million- SGD 150 million right now. Where do you see yourself maybe by the third quarter at the rate you're going now?
I think we expect that to be reasonably stable. The reason is to do with the way in which we're rebuilding the network, which is to try and ensure that as we rebuild, we are covering our variable cash costs. You'd expect it to be reasonably stable.
Okay. Just low, meaning at current levels?
At current levels, yes.
Thank you.
Thanks, Stephen. Thanks, Ven. Next question, please, Operator.
Thank you. The next question is from Ezien Hoo from OCBC. Please proceed.
Hi. Thanks for the presentation. I have two questions, one in relation to the fuel hedging. Do we expect any cash impact from the hedges for 2022 financial year? I just wanted to get a little bit of color on how fuel hedging positions are decided. Is it through a committee? The second question is in relation to vaccine passports. Just wanted quickly if the company can share some color on what's the progress of vaccine passports, what is being done to ensure that passengers traveling are actually suitable to fly? Thanks.
Okay. Let me take the cash impact of fuel hedges. The answer is that there will be an impact. It could be positive or negative, depending on prices. Sorry, there could be an impact from fuel hedges. We have this difference, particularly for those that have been deemed as ineffective. We have a P&L impact, which may be not a cash impact as we recognize revaluation gains or losses. A cash impact arises when the hedge actually matures, and we have to settle with our counterparties. That's the point at which we either will pay away or receive cash upon settlement. Again, we're trying to manage that position in order to minimize the overall impact. As I mentioned in connection with the operating cash burn, it is one of the things that can move the needle in our monthly operating cash burn.
I'll ask Lee Lik Hsin. Sorry, I'll ask Lee Lik Hsin to take the questions on the vaccination passports.
Yes, thank you. Vaccine passports are really a decision that governments have to make in relation to their usage in their travel restrictions. From our perspective, obviously, we want to facilitate any such decisions and as demonstrated by our working with IATA for the IATA Travel Pass, where we were the pilot airline to make sure that we put it on digital platforms such that passengers can avail themselves and therefore make it seamless for them. Thank you.
Thank you, Lee Lik Hsin. Next question, please.
The next question is from the line of Mayuko Tani from Nikkei Please go ahead.
Good morning. Thank you very much for the presentation and the opportunity to ask questions. I would like to ask about your outlook. In the first week, you have said that in the second half you are hoping for further recovery in international travel demand. Just now we heard that the capacity buildup is based on the cargo demand. When it comes to the air travel demand, how do you see the possibility of, and the risk of it going further deteriorating on the view of the current new variant? If I may, another question is about cargo. What is the reason that you have to be quite cautious in building up the capacity? Obviously Korean Air earning quite a bit from cargo. Is that because in the long term Singapore may not have that much demand for cargo? That's all. Thank you.
Okay. I think on cargo capacity, I don't think we have been cautious. As I was trying to point out in my presentation, we have been actually very proactive in injecting cargo capacity, despite there being very little in terms of passenger services. Through both the use of passenger planes for cargo-only mission as well as reconfiguring passenger planes by removing seats on the economy class to make room for more cargo carriage. Absolutely, we believe we have left no stone unturned in terms of trying to meet the cargo demand. On the other aspect of passenger travel demand, we don't expect to be a smooth sailing opening throughout the period. We do expect that any opening will be somewhat patchy because as you already have witnessed there are new infections and infections can flare up in countries.
You look at Taiwan recently, you look at even Japan, Malaysia, and all that and in Singapore for that matter. What we are also seeing, and I think the evidence has shown is that vaccinated people are actually less severely affected even when they're infected and that is actually a very good news. We do believe that going forward as more people get vaccinated with a combination of vaccination, testing regime, some guidelines on the rate infections of different countries, we will be able to manage a calibrated but safe opening. I think that remains to be the case and that's why we say that the vaccination rate ticking up is a good sign. Thank you.
Thank you, Mr. Goh. Next question, please, Rishi.
Next question is from Chew Hui Min from MediaCorp CNA. Your line is open.
Hello. Hi. Thank you for taking my question. I would like to ask what is the impact of a second delay in the Singapore-Hong Kong Air Travel Bubble on SIA? The second question is, do you have any further plans to retrench staff or cut their pay? Thank you.
I'll take the second question first, which is that no, we don't have any plans. It was already a very painful process for me personally when we had to do that. I said at that point in time that I hope not to have to go through again and that remains true from my perspective. No current plans. The second part about Hong Kong. I was earlier mentioning what the Hong Kong travel, when they were announced in both the first cancellation, subsequently the announcement to resume. What they show us actually that there is a lot of underlying demand. As you know, once it was announced, we had actually flights being filled up months ahead. Quite frankly, the situation with the virus is something beyond anybody's control.
What we need to be is to ensure that the organization is flexible and nimble to respond to it. That's what we have been doing. As soon as the announcement on the cancellation took place, we reached out to all passengers to ensure that they have as little disruption in terms of their plan for travel as possible. Even when the cancellation had to go on, we try to re-accommodate and all that. I think the modus operandi from our perspective is just to make sure that we're prepared to come in whenever the opportunity presents itself, but at the same time, be nimble and flexible if adjustments have to be made to the plan. Thank you.
Thank you, Mr. Goh. Next question, please, Rishi.
The next question is from Kaseedit from Citib ank. Please proceed with your question.
Hi. Thank you for the presentation. I just have one quick question. Your cash was about SGD 8 billion and net gearing, including recent liability, was quite low at 0.4. Looks ample, especially with a reduced cash burn that Stephen just guided. You decide to issue the second tranche of MCB, adding another SGD 6.2 billion. Can we expect a major investment or acquisition beyond Singapore-based operations, such as like bidding for Air India, for example? Thank you. That's the only question I have.
Thank you for the question. I think you would have seen our press release on the MCB and the reasons why we are proceeding with the MCB now. Primarily to do with the fact that the recovery profile is still uncertain, it would be prudent for us to bolster our equity base. The other perspective we took in thinking around issuing the MCB now is a multi-year view. How to build ourselves, what we need to do, what we need to invest in our core capabilities in order to emerge stronger from COVID and take advantage of all the opportunities. The third point is really the MCBs are unique from an ability for SIA to redeem perspective. It allows us, as we move forward, if the recovery is faster, we can redeem and adjust our capital structure and manage it as we move forward.
These are the reasons why we decided to go forward with MCB. To your question of M&A, I think you have seen in our press release and our launch announcement on the use of proceeds, there's no mention of M&A use of proceeds there. I think that answers that question.
Thank you, Kaseedit .
Thank you. That's clear.
We probably have time for maybe two or three more questions, but we'll see how it goes. Can we get the next question, please, Rishi?
Sure. The next question is from Brendan Sobie from Sobie Aviation. Please proceed with your question.
Yes. Hi. Thanks for the briefing. I had a question about the narrow-body fleet plan. First of all, with the MAXs, the eight MAXs that are being delivered this year, which the fact that you're mentioning it at the bottom of the slide, does that mean that you don't expect to operate them this year and that the nine NGs that you have you think are sufficient for the narrow-body network at the moment? The second part of this question is the A321neos for Scoot. I was wondering what was the outcome in terms of negotiating any potential deferrals with leasing companies on those? You had 16 on order, six, I think, with directly from Airbus. Those seem to have been deferred, but the 10 leased ones don't seem to have been deferred.
I was wondering why that is given that if you look at LCC competitors in this region, most of them are not taking any leased airplanes this year.
Okay. Campbell, you're on the line. Maybe you can take the second question and I'll ask Kaseedit the first one. Sorry, we seem to have some feedback. Maybe if you could put that on mute, Rishi. Thank you. Campbell, if you could go ahead first on the Scoot question. Campbell Wilson, please.
Sure. Okay. We've engaged with the lessors. There are two lessors involved. One is BOC Aviation, the other one is SMBC. We have sought to defer the delivery of the aircraft but have been unsuccessful in the negotiations.
Thank you, Campbell. Maybe, Kai Ping?
Let me take the questions on the MAX. I think you are again referring to slide 18 of Stephen's deck and what they are all statement of fact as they currently stand. Okay? As I said before, what happens as we move forward is really a bit fluid because it depends on the authorities ungrounding the Boeing 737 MAX, including Singapore and other jurisdictions that the MAX will fly to. Statement of fact, the MAX that have been delivered to SilkAir, they are grounded. Singapore CAAS have not ungrounded them, they remain grounded. We have in our agreement with Boeing and the order book eight to be delivered this year, this financial year. Obviously, we'll have to see what happens with the regulatory ungrounding. Yeah.
Thanks, Kai Ping. Could we get the next question, please, Rishi?
Next question is from Adrian Schofield from Aviation Week. Please proceed.
Hi. Thanks a lot. Just curious to get your general thinking on the future prospects for your A380 operations and fleet, given that many operators see a diminishing role for their A380s?
Okay. I think, as you are aware, we have actually removed seven from our fleet, so we're left with 12. At the moment, it is our belief that the 12 remaining in the A380 fleet will be put to good use in the future.
Thank you, Mr. Goh. Next question, please, Rishi.
Next question is from the line of Divya Gangahar.
Hi, this is Divya from Morgan Stanley. Thanks for the opportunity. Two quick questions. Just wanted to understand on your passenger yields in the fourth quarter seemed much higher than the third quarter. Could you comment on what's driven that and what's the outlook on passenger yields depending on the routes that you plan to add? The second quick question would be just in terms of cost out. Is there a sense on, in the last one year how much of the cost outs are more permanent in nature and not linked to revenue? Any sort of guidance on that? Thanks.
Okay. I will ask Stephen to answer the cost question, then Lik Hsin, maybe you chip in on the passenger yield prospect. Over to you.
I'll go first. Lik Hsin here. The passenger yields in this current environment are really very erratic. As you will note, it is on a very, very small base of travel. It is natural to expect fluctuation. We will only see more stable passenger yield when we have more material return to our loads in comparison with the business as usual environment. Thank you.
On costs, the big picture here is that we are continuing with our transformation program. We have identified, I think it's actually on one of the slides somewhere, there's something like 260 initiatives which are driven by cost reduction initiatives, which are really spread across the whole operation, so that there are different parts of the business that are actually seeking to put in place new processes or negotiate new arrangements, by which I mean new ways of delivering service or product with our vendors or simply negotiating on rates. Our expectation, if you set aside for a moment the fact that we're operating significantly below business as usual capacity, our expectation is that our operating costs, unit costs, will be driven down a little bit further, essentially the continuation of the transformation program whose results you would have seen through Q3 of last prior year.
That continues. The other big impact is that we are taking delivery of New Generation aircraft. In a way, this is the greatest single impact that we can have on our unit costs, both from the perspective of reducing maintenance costs as well as fuel costs. As the proportion of New Generation aircraft in the fleet increases, so we will see a reduction in our unit costs. That's a continuation through the next two, three years. The dominant unit cost theme currently, however, is the reinstatement of capacity. As we start to build capacity, we are spreading our fixed costs over an increasingly large capacity base, and as a consequence, the unit costs are being driven down. In a way, that's simply a consequence of reinstating capacity, but it is a helpful thing to know.
The underlying work has to do with the new aircraft being delivered and the transformation program, which is in process.
Thank you, Stephen. We'll have the final question of the day, please, Rishi.
The final question is from Ng Jun Sen. Your line is now open.
Hi. Actually, my question was earlier answered. It was on staff measures. I was wondering if there was still scope to cut staff positions or at least reduce staff costs in the new financial year. If you could give some color on what factors that would depend on, including whether any government support would actually help defer that or push that down the line. Thank you.
Thank you. I think our CEO, Mr. Goh h as answered that question quite directly earlier, so I think that should take it. I think that's the end of today's media and analyst briefing. Thank you everyone once again for joining us today. We really appreciate your questions and your time. We hope to see you again, hopefully physically, if not virtually, in six months' time. Please take care and stay safe, everyone. Thank you to everyone. Have a good day.