Ladies and gentlemen, thank you for standing by and welcome to Singapore Airlines Media and Analyst Briefing for the first half of the 2020/2021 financial year. At this time, all participants are in a listen-only mode. Following the presentation, there will be a question and answer session. If you wish to ask question, please press star one on your telephone keypad. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Siva Govindasamy, Vice President, Public Affairs, Singapore Airlines. Thank you, sir. Please go ahead.
Thank you, Rishi. Good morning, everyone. I'm Siva from SIA Public Affairs. I hope everyone is well. Welcome to our half-year media and analyst briefing. Given the COVID-19 measures that are currently in place, we are unfortunately unable to meet everyone in person once again. However, we hope that today's virtual session will be useful. Today we have two presentations.
First, Mr. Stephen Barnes, Senior Vice President, Finance, will present the group's first half 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 Q&A session. Without any further ado, I would now like to invite Mr. Barnes to make his presentation. Mr. Barnes, please.
Thank you very much, Siva. Good morning, CFO, EVPs, and good morning to all of you who have taken the time to join us for this briefing. It falls to me to take a look back at SIA Group's financial performance in the first half of the financial year. We recorded a large first half net loss, coming in at SGD 3.5 billion. First half operating result swung into a deep loss of SGD 1.86 billion. A swing of SGD 2.3 billion as revenues collapsed following the slump in traffic.
The reduction in passenger flown revenue was partly mitigated by the reduction in expenditure as capacity was cut and by growth in cargo revenues. The operating loss included a charge of SGD 462 million for fuel hedging ineffectiveness. This is why the group is working hard to support all efforts to reopen borders and reinstate passenger operations.
The net loss was struck after recognizing non-recurring charges of SGD 1.7 billion. The major items are noted here. Note in particular, the SGD 1.3 billion aircraft impairment, which comes about upon completion of the network and fleet review. We anticipated that this review may conclude that some of our older generation aircraft may be surplus to our future requirements and alerted the market to the possibility in July.
Perhaps note also the decision to write down the goodwill that we recorded when the group gained control of Tiger Airways in 2014. With so few flights being mounted and many aircraft grounded, it is prudent to write down the goodwill asset. A highlight is the 80% drop in revenue during the first half. As already mentioned, this comes about from the collapse in passenger traffic, partially mitigated by growth in cargo revenues.
Total expenditure, on the other hand, fell by only 56%, although by 60% in the second quarter. This is because many of our costs are fixed, or at least fixed in the short term. As a result, expenditure cannot fully adjust to the 80% drop in revenue. At the end of the first quarter, following a downward reassessment of the pace at which we expect to be able to recover our capacity, we recognized that our future fuel consumption is likely to be lower.
That means that more of our fuel hedges are ineffective. Therefore, we had to recognize in our P&L the SGD 462 million revaluation losses that had been sitting in our reserves. In addition, fuel prices fell between 30th June and 30th of September, we booked SGD 100 million revaluation loss in the second quarter on the fuel derivatives that have been dedesignated as hedges.
The overall impact of these factors is a SGD 2.3 billion reduction in the operating result for a first half operating loss of SGD 1.86 billion. I will talk more about the decline in the net results shortly. Onto slide six. The main reason for the 80% drop in revenue, as I've mentioned, was the collapse in passenger flown revenue due to travel restrictions.
On slide seven, the pie chart shows that the dominant source of revenue is now cargo flown revenue, contributing over 75% of the total. Cargo flown revenue was up SGD 274 million, as you can see. It was driven by stronger cargo yield performance, partially offset by a decline in loads carried. Loads were in fact constrained by the drop in capacity caused by the reduction in belly hold capacity with the drop in passenger flights.
Therefore, great efforts have been made to increase cargo capacity by flying passenger aircraft that only carry cargo, and even removing seats to make more room. However, passenger flown revenue was down by nearly 98%. All three airlines operated networks to provide essential connectivity only since April 2020. This means that passenger capacity was cut dramatically, which you can see in the far right column.
Carriage fell even more, so that the passenger load factor across the three airlines fell from 85% to 16%. With fewer than 1% of last year's passenger numbers, the increases in yields could only mitigate the effect on revenue so much. Let me also highlight the drop in engineering services revenue, which was mainly attributable to flight cancellations by all other airline customers, which caused sharp reductions in airframe and line maintenance revenue and engine and component revenue. Group expenditure. I apologize. Yeah.
Group expenditure also fell dramatically, it lagged the drop in revenue. Let me focus on slide nine, on fuel hedging ineffectiveness and the fair value loss on fuel derivatives. The ineffectiveness was SGD 462 million, as I mentioned earlier. This arose from the slower than expected recovery of passenger capacity, resulting in more fuel derivative contracts in both the current and the next financial year being designated as hedges.
There was a fair value loss on fuel derivatives of SGD 102 million, which arose from revaluation of fuel derivative contracts that have already been dedesignated as hedges. Fuel cost itself, after hedging, decreased by nearly SGD 2 billion, reflecting the cuts in passenger capacity, offset only partially by the increased utilization of freighters and mounting of passenger aircraft carrying cargo flights. Staff costs fell SGD 939 million. This came mainly from three sources.
Firstly, lower pay and allowances, actually a substantial source of that reduction came from grants received under the Singapore Budget 2020 to aid businesses affected by COVID-19. There has also been a significant contribution from other staff cost management measures such as salary cuts, no pay leave, furlough, and others. One of the consequences of the steep drop in flying hours due to capacity cuts is a substantial drop in crew allowances.
Finally, there is no provision for a profit-sharing bonus for this year at this stage. Depreciation for aircraft relates to an enlarged aircraft fleet over the prior 12 months, partially offset by the return of a number of aircraft to lessors. The reduction in other cost items was tied to the reduction in flying and the reduction in carriage. Take a look at the fuel cost.
You can see that the dominant feature here is the reduction in fuel consumption. Supported also by a lower weighted average fuel price, which was offset by the hedging loss versus a gain in the prior year. Contributing overall to an 84% reduction in our fuel bill. I'm sure you will recall that we recorded a large operating loss in the fourth quarter of the last financial year as the effects of the pandemic began to spread across the globe.
Similar losses have continued through the first half of this financial year, due mainly to the reduction in revenue and partly to the impact of ineffective fuel hedges. If we look at the overall impact or the various impacts on operating performance, the dominant impact is the reduction in passenger flown revenue. Partially offset by the improvement in cargo flown revenue and lower net fuel costs.
An additional charge relating to fuel hedging ineffectiveness, reductions in many other costs, including staff costs, handling charges, landing, parking and overflying, and others. You can see the large reductions in sales costs and passenger costs and MRO costs as a consequence of the reduction in flying. Leading to an overall SGD 2.3 billion reduction in operating performance. The narrative is similar as we move from the group to the key operating entities.
We see a drastic drop in the amounts of flying across all three airlines, causing a collapse in revenues. Expenditure was also cut significantly, fixed costs mean that cost reduction was less than the revenue reduction. This applies to SIA Engineering Company also, whose revenues are largely tied to the amount of flying by its airline customers. Moving to slide 14, take a look at the group's net loss for the first half.
I'm sure you will agree that this SGD 3.5 billion net loss is very sobering. The swing from net profit to net loss will be explained on slide 15. The net loss in the first half would be largely to be weaker operating performance. The group also recorded impairment charges totaling SGD 1.7 billion. The largest of these related to surplus aircraft. The overall impairment of aircraft was taken in two parts.
In the first quarter, we announced that we would take an impairment of seven aircraft that were returned from NokScoot, to which they had been leased. They will no longer fly for SIA. The balance, SGD 1.33 billion, relates to surplus aircraft identified during the fleet and network review, and impairment of the goodwill recorded when the group gained control of Tiger Airways in 2014, as I noted earlier.
We incurred rationalization costs in connection with manpower, which were announced just a month or two ago. SIA Engineering Company impaired its hangars and other base maintenance assets. We had a small increase in our net finance charges, all of which was partially offset primarily from tax credit earned against tax expense last year. That's the waterfall chart. My final slide shows the group per share data. I don't think I will linger on this slide, which simply reflects the losses recorded during the first half. I'm very happy to hand over to Goh Choon Phong, our CEO. Thank you very much.
Thank you, Stephen. Good morning, ladies and gentlemen. Welcome to our virtual media and analyst briefing. I'll talk through four points, four key topics in today's briefing. Firstly, financial position. I believe you will argue, or you will disagree, that liquidity is today one of the most important survival factors for businesses and especially for airlines.
In this area, SIA Group has raised SGD 8.8 billion from our shareholders through rights and rights MCB issuance. We've raised an additional SGD 2 billion to secure financing of our aircraft, and we have increased our committed lines of credit by another SGD 500 million. Altogether, in the last six months or so, we have raised an additional SGD 11.3 billion in liquidity for the group.
To bear in mind that this is on top of the SGD 1.7 billion in committed lines of credit that was preexisting before the COVID crisis. The SGD 1.7 billion preexisting lines of credit is largely unutilized at this moment. We are not stopping here. We are increasing our efforts to look at more sources of raising liquidity. We have entered into discussion, in fact, at advanced stage to do more sales and leaseback transactions.
We are also looking at tapping the debt equity market or rather the debt capital market. With all this, we are confident that we will have very strong liquidity, in that we believe that we have one of the strongest, if not the strongest liquidity position among airlines. Of course, it's not just about raising liquidity, it's also about cost management, Stephen Barnes have earlier mentioned about some of them.
I just want to touch on two of them. One is the painful exercise that we have to go through in September. In that exercise, we have to cut to a tune of 4,300 positions from the group and release 2,000 of our staff from employment. We have completed our negotiations advance. We're at an advanced stage of negotiation and discussion with Boeing. I believe we are making good progress in those areas.
In part, we're able to make those progress because we have strong liquidity to ensure their survival, so our partners are aware of that. We have started those negotiations very early, in fact, as far back as in February. We're not just talking about managing cost and liquidity. We are also talking about going out and try to seize revenue opportunity, any revenue opportunity in a market that we can pursue.
We know that in this private environment, our customers are very concerned about health safety. From the start, we pay a lot of attention on how to ensure a safe journey for our customers end to end, from pre-flight all the way to post-flight. Some of this, and some of the comprehensive actions and measures that we've taken are on the slide.
I want to highlight that because of our modern fleet philosophy, all our planes, all the planes we are operating, are equipped with HEPA filter. As you know, this filter out 99.97% of viruses and bacteria in the air. The air in the cabin are changed out every two to three minutes, so very clean air. On top of that, and many of our customers have asked that question about high touch surfaces, especially in the lavatory, and that's understandable, the concern.
We want to assure everyone that we have coated all high touch surfaces in and around our lavatory on board the plane, and that includes the Scoot plane, with long-lasting antimicrobial coatings, which basically will kill bacteria and surfaces, and effect will last at least for a month.
The efforts we have put in ensuring a strong digital capability have also produced good results by allowing us to very quickly introduce digital solutions to ease the travel of our customers when they fly with us. It also allows them to have contactless interaction. For example, on board the plane, they are able to use their personal devices to control the IFE rather than having to touch the surfaces of the screen or the handset.
I think everybody will agree that Singapore is probably among the most proactive nations in the world when it comes to looking at ways to open up, and reduce travel restrictions in a safe manner for our customers. I believe everybody know about the three schemes, the unilateral opening, reciprocal green lanes, RGL, and the latest being the air travel bubble that we are in the process of finalizing with Hong Kong.
In particular, for the air travel bubble arrangement, this will actually facilitate and allow general travel and not just travel for essential businesses. We believe that this will serve as a very good pilot and example of how we can actually open up travel in a safe manner for everyone.
Of course, all these travel arrangements, travel schemes, are also supported by advances in testing regimes and protocols, as well as availability of different type tests in the market. We believe that the continuous investments in all these test schemes as well as test approaches would further ease travel going forward. For example, the breathalyser that we're talking about and been experimented in Singapore.
As a consequence of all these schemes that have been introduced, as well as the strong demand for cargo in the belly hold, we are seeing increasing demand for the flight, and therefore our ability to step up on our capacity. We project currently that our capacity will reach about 16% of pre-COVID -19 base by the end of the year, in December. We will continue to be very nimble and flexible to see what other opportunities the market may bring.
For that matter, any adverse environment that the market could have in the future, and adjust our capacity in a nimble and flexible manner, up or down. Cargo is a bright spot for the industry and certainly for us as well. We have been taking proactive steps to operate, for example, passenger airlines, passenger aircraft for cargo missions. We've gone a step further to actually convert some of the existing passenger planes by removing the seats on board the plane.
Actually, for example, for the 777-300ER, we removed the seats on this premium economy, as well as economy class cabins. Which will allow us to actually carry more cargo, in that case, about 9.5 tons more, to capitalize on the demand for cargo shipment and operating this aircraft to bring us more revenue.
One of the planes have already started its operation last week, and we have set the other planes, the other 777-300ER, which have been converted into pseudo-freighter, will start operation this week. Cargo continues to build up its capabilities in perishables and pharmaceutical. The growth in Cargo during this period is primarily stimulated because of demand for perishables as well as pharmaceutical movement, as well as e-commerce, for that matter.
Enhancing our capabilities to carry more of such goods will allow us the ability to participate more in the opportunities. Particularly for pharmaceutical, we are all expecting vaccines to come on board starting perhaps next year, and our cargo division is ready to carry such shipments. Some of the strategy we have pursued even before COVID-19 continue to benefit us in ensuring that we have a nimble and flexible way to respond to such a crisis.
Our integration, SilkAir integration back into SIA is one such initiative. We can begin to expect SIA to operate its first narrow-body plane sometime by the first quarter of next year. This will give us the flexibility of deploying wide-body or narrow-body operations on the route, depending on the demand, in a seamless manner.
Similarly, for Scoot, it will allow us to deploy the right vehicle to the right market, depending on the demand profile of that market. As you all know, we invested in Vistara in India because it allow us to participate in the growth of another major market which SIA cannot directly participate in. As you can see here, Vistara today is already operating 55% of its pre-COVID-19 domestic capacity.
They expect to reach 60% by end of the year, by the end of March, or rather April of next year, Vistara is expecting to recover and operate 100% of its pre-COVID -19 capacity. Of course, subject to regulatory approval. Vistara has also grown internationally, as you can see there, London, Dubai, Dhaka, Doha. We expect Vistara to continue to seize any opportunities in the market to grow.
COVID-19 has been difficult for airlines and especially for airlines such as SIA, because we do not have a domestic market. Even in this difficult time, we have not forgotten, and we have not let up in our engagement with key stakeholders. We continue to participate in community projects and initiatives. Our cargo division, together with Carmatic and World Food Programme, has been transporting needed goods and aids to countries in need, humanitarian aids in particular.
Our Ambassador programs have been well-reported. Many of cabin crews participate in them, and we are proud to be contributing to the nation's fight against COVID-19. Of course, we want to ensure that when our employees begin to come back to work in bigger numbers, that they come back to a safe environment. Customers. The engagement of customers are very important for us.
COVID-19, of course, means that we operate very few flights, and therefore, the opportunities for us to interact and engage our customers are small. Therefore, we have come up with various schemes for us to reach out and for us to still interact with our customers. I think everybody is quite aware of the Discover Your Singapore Airlines experiences that we have been launching.
All of which we see overwhelming response, we thank all our customers and also the Singapore public for your support, and also your encouraging words to our staff as when we interact with you. It's not just about managing the crisis itself. In parallel, we have been preparing ourselves and ensuring that we are on a strong foundation to emerge stronger and fitter from this crisis.
We have not forgotten about sustainability. It will remain an important focus for us. I just want to highlight a few of them. When you talk about sustainability for airlines, you can't run away with talking about carbon emission from operating the plane. To be absolutely frank, the most effective way for any airline to reduce your carbon emission when you're operating your planes, is to ensure that you have fuel-efficient planes.
For the same mission that we are operating, we can actually reduce the amount of emission. In this case, as we mentioned earlier, our modern fleet philosophy allow us to keep the plane currently at six years old on average, which is less than half of what the average age of the fleet is of airlines in the world, which is more than 15 years.
Our experience has been that, especially for long-haul flights, we can achieve with these modern planes, with this modern technology, engines in particular, and also aircraft materials and design. We're able to have a fuel efficiency of more than or close to 30%, which will give us a substantial savings in terms of carbon emission. We reported also that we were implementing installing solar panels on our buildings.
I'm glad to say that those installations have been done, and we are, with those installations, having a savings of 2,300 tonnes of carbon emissions per year. In flight, we have not forgotten to see what else we can do. In this case, we are launching a new dining concept by the end of this year for economy class passengers in the regional flights.
Where instead of using the traditional containers, we'll be using paper boxes as well as bamboo cutlery. Those can actually be incinerated, not incinerated. Those can actually be converted into energy pellets through eco-digester, and which then can be consumed for energy. It is contributing to a circular economy.
On top of that, we are, as a result of using those containers, those paper containers, as well as bamboo cutlery, able to reduce the weight that we carry on board the plane by almost 60%, which again, contribute to lower fuel burn and a savings of more than 300 tonnes of carbon emission per year. We continue to push the boundary and grow new businesses that are adjacent to what we are doing.
Most of them have been reported before and you're aware, I just want to touch briefly on three. Kris+ is an evolution from the KrisPay app that we have launched, but with more functionalities in it. We added more merchant relationships. We also put in the boarding pass privileges and improved the user interface. Pelago is a brand-new business unit that has been set up within SIA.
It is really a trip planning platform, so customers can go in and Pelago will help them to plan the trip, and as they interact more, can personalize those trip planning. There are many interesting ideas in there, many hidden gems, even for Singapore. I urge you to go in and take a look. For anyone booking on Pelago, today until the end of November, you'll be eligible for five times the KrisFlyer points.
We announced the SIA or Singapore Airlines Academy early last week, and we are very happy that as of today, more than 50 organizations have reached out and expressed their interest to work with us. We strongly believe that SIA will be able to emerge stronger and fitter from this crisis. We have four key foundations that are not common among all airlines.
We have a strong and trusted brand. We mentioned earlier about strong liquidity and therefore balance sheet. Our people are very committed, very passionate, talented, and highly skilled. Over the last few years, as a result of our previous transformation, we have established ourselves to be one of the leading digital airlines in the world.
With that, we are launching a new transformation chapter, focusing on how we can ensure that we continue to be a leader in product and services, although those could be defined differently post-pandemic. We will achieve the financial sustainability needed in order for us to reward our shareholders, as well as continue to reinvest for our growth and future. Of course, we'll continue to ensure that the SIA spirit remains high and alive, and to ensure that all our people have the necessary skill set for the future. Thank you.
Thank you, Mr. Goh Choon Phong. We will now move on to the question and answer segment. For this, Mr. Goh Choon Phong and Mr. Stephen Barnes will be joined by Mr. Mak Swee Wah, Executive Vice President, Operations. Mr. Lee Lik Hsin, Executive Vice President, Commercial. Mr. Tan Kai Ping, Executive Vice President, Finance and Strategy. We have around 30 minutes, and we have many participants. As always, I would like to request that each participant limit themselves to just one question. If you could identify yourself before you ask a question, that would be very useful for us. Rishi, please could we have the first question?
Certainly, sir. The first question is from the line of Louis Chua from Credit Suisse. Your line is now open.
Hello, good morning. Louis from Credit Suisse here. My question is on the capital expenditure projections. Would you be able to share with us the numbers, that you last had, I think in the full year results, the projected CapEx for aircraft and others for FY 2021 and beyond? Thank you.
Louis, this is Stephen. We certainly had anticipated and hoped that we would be able to provide an update to our capital expenditure numbers. As mentioned earlier, we have not quite concluded the negotiations with Boeing. That remains outstanding, and our intention would be to appraise the market at the right time. We're not yet ready to disclose where we've got to.
Thank you, Mr. Stephen Barnes. Rishi, could we have the next question, please?
Certainly, sir. Once again, may we remind everyone it is star one for questions. The next one is from Chen Chuanren from Air Transport World. Your line is now open.
Hi. Thank you. Good morning, Chuanren from Air Transport World. You have mentioned that you're looking to increase revenue from your ancillary products such as KrisFlyer, KrisShop, even Aviation Academy. What is the ideal revenue or percentage contribution of these segments to SIA's income in the near future? Thank you.
Hi, Goh Choon Phong here. As you are aware, these are relatively new ventures and we're kind of in the midst of crisis, the COVID-19 pandemic. Therefore, it's probably premature for us to provide any guidance or projections on what kind of revenue we can expect. Obviously, we think that, going forward, as the market recovers and the business come back, that we will be able to look forward to at least something that is more material.
Thank you, Mr. Goh Choon Phong. Rishi, next question please.
The next question is from the line of Raymond Yeo from CIMB. Your line is now open.
Hi, everyone. Okay, my question is on the cargo space. The two A320ceos that had their seats taken out, when did they actually start flying? I'm not sure whether you mentioned it just now, I may have missed it. What's the payback period for the cost of actually removing the seats and then later putting the seats back on, and whether there's a cargo uptake in the fourth quarter as is usual? Thanks.
Yes, the A320s were done quite some time back. They were the first to experiment with this modality, whereas the 777s were more recent. In terms of payback for both of the aircraft types, of the cost of taking out and putting back the seats later, it is all expected to be within a very short timeframe, within a period of a year. That is why we are so confident to go ahead with it. To the final question of the uptick in the year-end cargo, the peak period, yes, we continue to see growing demand, and we expect there to be a peak season for the year-end.
Thank you, Mr. Lee Lik Hsin. Rishi, could we have the next question, please?
Certainly. Before that, we remind everyone it is star one for questions. The next question is from Adrian Schofield from Aviation Week. Your line is now open.
Thanks a lot. Yes, it is Adrian here from Aviation Week. Just have a two-part question, if I may. How are you planning your connecting banks differently due to the severe reduction in flights and city pairs? Also, how do you think the role of connecting hubs will change in the immediate post-COVID -19 environment?
Hi, this is Lee Lik Hsin again. Obviously, we would not be able to have a similar complexity of connecting banks that we had pre-COVID -19 , given the big reduction in services. We have made sure that the key connecting corridors are able to flow through the passengers, and we have made provisions for that in our network planning. To the second question of hub development in the future, we believe certainly that the hub activity will still be important, and that is a cornerstone of our strategy, and we would want to remain one of the preeminent hubs in the world for both global travel.
Thank you, Mr. Lee Lik Hsin. Rishi, next question, please.
Thank you. The next question is from Ian Wong from UBS. You may now proceed with your question.
Hi, guys. Can you guys hear me?
Yep.
Yes.
Good, thanks. Thanks for taking my question. Two questions if I may. Given the about SGD 1.3 billion impairment losses being recognized for the 26 older aircraft, is it safe to say that this is probably it for the near term in terms of impairment of the aircraft? Secondly, if I may, can I please get an update on the cash burn rate at the moment given the outlook of a 16% capacity of pre-COVID-19 levels by December? Thanks.
Thank you for the question. This is Tan Kai Ping. The impairment of SGD 1.3 billion in respect of 26 older generation aircraft was a result of the network and fleet review as we look at the trajectory post-COVID -19 . That's our best view of the world right now.
On cash burn, it has reduced compared with the first quarter. We are currently seeing below SGD 300 million cash burn on a monthly basis.
Thank you. Could we have the next question, please?
Certainly. The next question is from Pang Gek Teng from Xinmin Daily News . Your line is now open.
Hi. This is from Xinmin Daily News. I wanted to ask, because the Discover SIA, especially the restaurant in Phase Zero and the Inside SIA has been very popular, is there any decision to make it a more constant offering or more regular offering?
This is Lee Lik Hsin again. As you know, we recently concluded our restaurant at A380 series. We are now putting all of our effort into the next series of activity, which is the Inside Singapore Airlines experience, an inside look at our training center. I think at this time, we would want to concentrate on making that as big a success as our restaurant at A380 before we make any further considerations.
Thank you, Lee Lik Hsin. Could we have the next question, please, Rishi?
Next question is from Brendan Sobie from Sobie Aviation. Your line is now open.
Yes. Hi, good morning. I have a question about the ULRs and the future of the ULRs. Has there been any review of those and any decision on whether you're going to keep all seven or maybe convert some of them to non-ULRs?
Just takes into account, obviously, the U.S. market's going to be a bit slow in coming back. The premium segment, which these aircraft are very heavy on, is going to be slower to recover. Also the fact that there's improvements to the non-ULR maximum payload and your experience with the non-ULR on LAX since April. Keeping all those in mind, I was wondering what your thoughts are on the ULRs going forward.
Hi, Brendan. Goh Choon Phong here. The simple answer to your question is no. There is, at this point in time, no decision on the ULR. That we are, at this point in time, still keeping those ULRs, and we look to be able to deploy them when the opportunity comes.
Thank you. Rishi, next question, please.
Next question is from Tang See Kit from CNA Digital. Your line is now open.
Hi. Thank you so much for taking my question. I have one on the company's ability to continue raising liquidity. I know you said that you're exploring various options, but I was wondering how feasible are they in terms of these options actually materializing and big enough to support the company's expenses, given how air travel limits will likely remain in place for some time? Or does the company see the need to ask the government for financial support at some point?
Thank you for the question. This is Kai Ping. Goh Choon Phong mentioned we are exploring the tertiary stock market and the capital market. Both are at a very advanced stage. We are confident of the access to those markets and the liquidity.
Thank you, Tan Kai Ping. Rishi, next question, please.
Next question is from K Ajith from UOB. Your line is now open.
Yes. Hi. I just got one question. This is regarding potential cargo, conversion of passenger aircraft to cargo. You have outlined two 777-300s, but you have quite a number of 777-300ERs and even A380s in your fleet. What is the scope for converting some of these aircraft to cargo, i.e., by removing the passenger seats?
Yes, this is Goh Choon Phong. We normally would enter into this conversion only when we have secured the business or are very confident of the business on a particular route, which is what we did in the case of all of the aircraft that have been shown to be converted. We will continue to explore with our business partners, with the freight forwarders, on whether there are additional such routes, which can take the operating cost of that conversion where it will make a positive business case for us. Thank you.
Thank you, Goh Choon Phong. Rishi, could we have the next question, please?
Certainly. Next question is from Sharjeel Hassan from Goldman Sachs. Your line is now open.
Hi. Sharjeel Hassan from Goldman. Thank you for taking my question. I have two quick ones for you. It's on financing, basically. Can you let us know on the MCBs, what is it that you're looking for when you decide to raise them? Is it like a certain net debt to equity ratio that you're looking for or some other metrics before you raise further capital there?
Secondly, you mentioned some other sources of financing. Are you also looking to sort of monetize your card business like KrisFlyer or something which the U.S. airlines have done? Any chance you can give us like a ballpark as to what your internal estimate of the value of that KrisFlyer business is? Thank you.
Thank you for the question. This is Tan Kai Ping. I don't think we are ready to discuss the financing plan further than what we have spoken about at this briefing. I think the cause of the recovery and the pandemic is really still full of uncertainties. What we are doing right now is making sure that we are proactive and ready to seize all opportunity and be in a position to seize on the opportunity to recover.
Thank you, Tan Kai Ping. Rishi, next question, please.
Next question is from Mayuko Tani from Nikkei. Your line is now open.
Yes. Hi. Thank you for taking my question. About the surplus aircraft, you have said that so far this is it. May I know what's going to happen to those aircraft? How does the aircraft market look like, how long it's going to take to sell? With the negotiation with Airbus concluded and then Boeing at advanced stage, what's the number of the fleet that we can expect at the end of the year and into 2021? Thank you.
The 26 aircraft that have been impaired. A lot of them are actually already due at some stage in the near future to leave the fleet. The reason why we are impairing them is because we don't see them taking to the skies. These are the least efficient aircraft, if you like. If you stack them up, we don't see them taking to the skies again.
Therefore, we have taken the impairment. In respect of the A380s, the seven that we have impaired, they have reached basically certain maintenance windows. Heavy maintenance windows that will make sense for us to ground them and take them out of service rather than spend more money on them, because we also don't see them taking to the skies again. That's how we came around to those 26 airplanes. They will basically be disposed through the most economic means. Yeah.
Okay. Your other questions on Boeing, as what Stephen Barnes said, we will, when we have completed the negotiation, be able to share more.
Thank you, Mr. Goh. Thank you, Tan Kai Ping. Rishi, next question, please.
Next question is from Kazuhito from MUFG Bank.
Hi, good morning. Thank you for your time. Just very one quick follow-up questions on the CapEx and aircraft plan. I appreciate that you cannot disclose too much at this point in time. Can you reconfirm that it's just purely deferral and there's no cancellation? Thank you.
I think we are not ready to disclose at this point because negotiation is at advanced stage. Don't think it's in the best interest for us to talk about it at this point until it is concluded.
Okay. That's fine. Thank you very much.
Yeah. Thank you.
Thank you.
Thank you.
Next question, please.
Next question is from Pang Kian Yan from Lianhe Zaobao. Your line is now open.
Hi, I'm Pang Kian Yan from Lianhe Zaobao. You have the option to exercise the MCB to raise another SGD 6.2 billion. May I know when will you exercise this option? Would that be sufficient for the next 12 months, or you have to complement it with other options like tapping on the debt market?
Hi, this is Kai Ping. No decision has been made yet on the SGD 6.2 billion of additional MCBs. It is available for us to call upon if necessary up to the next annual general meeting. At the same time, we are taking a proactive posture in respect of liquidity, as I mentioned before.
Thank you, Tan Kai Ping. Next question please, Rishi.
Next question is from Lorraine Tan from Morningstar. Your line is now open.
Yeah. Hi, good morning. Just to follow up on the CapEx. The first half CapEx is significantly below that of the first half of a year ago. Just wondering whether we can use this figure to represent what it might be in the second half, pending your negotiations with the aircraft makers. Thanks.
I think you should just wait for when we conclude the discussion. We will disclose what the CapEx profile is to the market.
Yeah. Sorry, can I just ask so what were the main things that were spent on in the first half then?
By value, the largest expenditure is certainly still aircraft. Yeah. By a long way. Really all of the other projects that could be stopped were stopped. It's really dominated by aircraft purchases and a certain amount of capitalized maintenance expenditure as well.
Thank you.
Next question please.
Next question is from the line of Tay Peck Gek from The Business Times. Your line is now open.
Good morning. This is Tay Peck Gek from The Business Times. Given your current liquidity, how long do you think you will last? Hello?
Okay. Sorry. We currently expect that we'll need to make a decision. It's really tied to the question of the MCB decision. We currently expect that we'll need to make a decision relating to the MCB towards the end of the first calendar quarter. I think that's really the indicator in terms of the expected liquidity.
I think, this is Goh Choon Phong here. As you know, the market is very dynamic at the moment. Can you hear us? Because a lot of echo.
Yes. I could hear. Can you hear me? Yes. Can you hear? Yeah, okay. Yes.
Yeah, we can hear you. Yeah. On our side, it seems to be a lot of echo.
I'm so sorry. Yeah.
Yeah. No problem. Really, the key is, as I was mentioning in my presentation earlier, the market is going to change. Because the testing regimes and protocol that we put in could be further improved as new tests are available, and that could stimulate the market. On the other hand, as you can see all over the world, that there are also possibilities of a resurgence, second wave, third wave and all that.
There are all kinds of dynamics, and we just have to be very nimble and flexible in responding to it. How that responds and how the market evolves would obviously also affect our operations and our cash flow. There are just too many variables at this point in time to do any meaningful projections.
Thank you.
Thank you. Rishi, next question, please. If you could ask the participants to put themselves on mute after they've asked the question so that we prevent an echo. Thank you. Sorry. If I may, we just have probably quick time for another three more questions. The next three, please.
Next question is from Paul Yong from DBS. Your line is now open.
Hi. Good morning, everyone. Can you hear me?
Yes.
Thanks. You've guided that we expect to be at about 16% of pre-COVID -19 capacity by end of the year. Could you provide a little bit more color on the longer term? Where do you think we could be by the middle of the year or next year? Of course, I understand that it's very dynamic, but could you share with us, for example, what's underpinning your assumptions for example, the ineffective fuel hedging going forward? Thanks.
Sorry. Can you repeat your question?
Where do you expect your capacity to be by, say, the middle of next year? Any guidance on where you expect capacity restoration to be like beyond end of this year?
Yeah. I think that as pointed out by our CEO, there are many variables in the market, both positive as well as potentially negative, in terms of testing, in terms of resurgence. It would be premature for us to really talk about next year. We are, as you note, increasing our capacity towards the end of the year from where we are today.
That's because we do believe that some of the things we have mentioned, the various opening of the Green Lanes, and potential Air Travel Bubbles, and improvements in testing technology, all this we do believe has a positive effect, and that's why we have increased the capacity. Too early to talk about what it's going to be like next year. Thank you.
Sorry, just to follow up, what's underpinning the fuel hedging ineffectiveness charge? We have to assume a certain capacity, right, beyond December in order to take that SGD 560 million charge for the first half.
Okay. By way of guidance, the assumed recovery in capacity takes us to close to 50% by the end of calendar 2021.
Okay. Thanks, Stephen Barnes. Thanks, Goh Choon Phong.
Sorry, I just want to add that, of course, as you correctly pointed out, in order to arrive at the number for fuel hedging ineffectiveness , we need to have some underlying assumption, but that's not to say that that's the way we will operate, because of how dynamic the situation is out there. You can be rest assured that we'll seize all opportunities, of course, but we've got to be very nimble.
Thanks, Mr. Goh Choon Phong. Thank you for that explanation.
Thank you. Rishi, next question, please.
The next question is from Gregory Waldron from FlightGlobal. Your lines are open.
Flight, can you hear me?
Yep, we can. Go ahead, Gregory Waldron.
All right. I'd like to ask about the Hong Kong travel bubble. Has any thought been given to the aircraft that will be deployed in that bubble? Is there any thought to perhaps putting the A380 onto that route when the bubble opens? Thank you.
Yeah. This is Lee Lik Hsin. We are obviously very keen to make the bubble a success. Of course, we do have to take into account the various consideration that the government, the regulators, will have in approving such a bubble. Being experimental, we can expect some level of conservatism. I think the ability to put our biggest passenger aircraft onto that bubble route, I think you can be sure that that will not be the case. We will be using one of our smaller aircraft. Thank you.
Thank you, Lee Lik Hsin. Rishi, the next question, which will be the last one for today, please.
Yes. The last question is from the line of Chu Peng from OCBC. Your line is now open.
Hi. I understand that cash burn is SGD 300 million on a monthly basis now. May I know of the level before COVID-19, and are we expecting further reduction on cash burn? Thank you.
Sorry. Can you repeat your question? We didn't quite hear it.
Okay. The cash burn is SGD 300 million on a monthly basis. May I know of the level before COVID-19, and are we expecting further reduction on cash burn?
We were profitable before COVID-19, so it was positive cash generation. Would you like to clarify your question?
Just now I think you mentioned that the cash burn is SGD 300 million now on a monthly basis. I was just wondering what's the level before COVID-19, the cash burn level? Also, are we expecting further reduction on cash burn?
Yeah. Sorry. Apologies for just wanting to make sure we had the question correct. Our operating cash position pre-COVID-19 was that we were in positive territory. We had surpluses. In this first quarter, we actually provided some update, or in August, I think, as to where we were. Sort of in the May, June, July period, our cash burn was in the region of SGD 350 million monthly. The indication that we gave most recently is that our cash burn is SGD 300 million and reducing.
Thank you, Stephen Barnes. Thank you, everyone. We have now come to the end of our media and analyst briefing. We hope to see everyone in person at our full year briefing, hopefully, if things get better. With that, I'd like to thank our participants. Have a good day, everyone, a good week, and good luck. Stay safe. Thank you.