The shareholders of PT Mandala Airlines, which is 35.8%-owned by Tiger Airways, "vigorously explored" various options but concluded that the carrier, which operates as Tigerair Mandala, can't sustain operations.
Following the review, Tiger Airways, along with other shareholders—Indonesian private-equity firm Saratoga Group and PT Cardig International—have decided to stop funding the airline, it said in a statement.
"The overcapacity situation that has put significant pressure on yields, the weakening of the rupiah, which depreciated more than 20% since of the beginning of 2013, has also increased operating costs significantly," Jusman Syafii Djamal, the chairman of Mandala Airlines' board of commissioners, said in a separate news release.
Tigerair, as the Singapore-listed airline is now branded, first invested in Mandala in January 2012.
The investment was part of Tigerair's attempt to replicate the successes of Malaysia's AirAsia Bhd. and Australia's Jetstar Airways by taking stakes in joint ventures in Indonesia and the Philippines and starting a subsidiary airline in Australia. But the strategy wasn't successful as Tigerair couldn't match the scale of local airlines in those countries. Its Australian unit was grounded by regulators in Australia for six weeks in 2011 over safety concerns, which dented the airline's reputation.
Tigerair, which is 40%-owned by Singapore Airlines Ltd., has already scaled back its investments in Australia and the Philippines. It announced a deal with Cebu Air Inc. in January to sell its 40% stake in Tigerair Philippines.
Last year, it sold its 60% stake in Tigerair Australia to Virgin Australia Holdings Ltd. and became a minority partner in its former subsidiary.
With the latest announcement, Tigerair will limit itself to its Singapore operations and its remaining 40% stake in the Australian affiliate.
For the fiscal year ended March 31, Tigerair's loss widened to 223 million Singapore dollars (US$178 million) from a loss of S$45 million a year earlier. The company has now reported a net loss for three consecutive fiscal years.
Pulling out of Tigerair Mandala will help Tiger Airways to focus on fleet consolidation and strategic alliances, the company said.
In March, Tigerair ordered 37 Airbus Group A320neo jets with Pratt & Whitney engines to renew its fleet with more fuel-efficient aircraft and simultaneously canceled an existing order for nine Airbus A320 current-generation aircraft, which were part of a larger 2007 order.
The new aircraft, which will arrive between 2018 and 2025, will allow Tigerair to keep its fleet capacity at a more manageable level and reduce costs. The aircraft from the older order would have been delivered in 2014 and 2015, which would have left it with more aircraft than it could use.
As of May 31, Tigerair had a fleet of 49 Airbus A320-family aircraft which averaged less than three years of age, according to its website.
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