Just four months ago, Cheong Choong Kong, Singapore Airlines chief executive, joked that the carrier must be one of the few companies that rejoiced at a reduction in its net cash position.

Announcing SIA's results for the year ended March 2001, he said that spending on aircraft, share buybacks and a 25 per cent stake in Air New Zealand led to a 14 per cent fall in its net liquid assets to S$1.4bn (US$793.3m).

Dr Cheong also announced a doubling in profit contributions from associates to S$108m, thanks mainly to a maiden contribution from its 49 per cent holding in Virgin Atlantic.

That stake cost SIA S$1.6bn, and while some analysts wondered if the price was too high, they supported the airline's strategy of becoming a global group of airlines.

With no domestic market in its home base, SIA has long sought strategic international investments to supplement its operations, which have been profitable since it was set up in 1972.

Failed bids for stakes in a series of airlines including South African Airways, China Airlines, Philippine Airlines and Australia's Qantas and Ansett finally came to an end last year with the Virgin Atlantic and Air NZ deals.

Two weeks after the terrorist attacks on the US using hijacked commercial aircraft, those investments have become liabilities, and SIA's cash pile is no longer seen as a burden.

Virgin Atlantic, with three-quarters of its traffic to the US, has slashed capacity by 20 per cent and said it will lay off 1,200 staff.

Air NZ has seen its wholly owned unit Ansett shut down and may be heading for creditor protection itself.

"If Air New Zealand goes into statutory administration, SIA may have to write off S$120m," says Peggy Mak of UOB-Kay Hian Research.

d3 Andrew Tan of ABN Amro, adds: "With Air New Zealand all but bankrupt and Virgin's transatlantic traffic severely affected, SIA's globalisation strategy is now a negative."

Timothy Ross, an analyst at UBS Warburg, expects associate losses for SIA of S$34m for the year to next March.

"With associates like these, who needs enemies?" he asked in a research note.

Dr Cheong, who last year won plaudits for his rapid and sensitive handling of SIA's first crash, did not mince words about the challenges ahead in an address to staff last week.

Against the background of the global slowdown and higher fuel prices, the attacks have led to further acceleration of fuel and insurance costs and lower traffic.

"A number of major airlines are on the brink of ruin. The pain is only just starting. Nobody dares predict how it will end," he said. Dr Cheong warned that job cuts - previously unheard of at SIA - might be unavoidable, and the airline announced a spending and hiring freeze, as well as initial cuts in flight frequencies to some destinations.

But despite the gloom - including a more than 30 per cent plunge in its share price since September 11 - SIA's deep pockets mean that its response to the crisis, as to the 1998 Asian financial crisis, may be to strengthen its competitive position.

Back then, SIA upgraded its first-class cabins. In keeping with tradition, a spokesman told the Financial Times last week that the airline remained committed to a S$100m refit of its business class despite the current climate. He added that for the time being, SIA was not deferring or cancelling any of the 51 new aircraft it has ordered.

While analysts believe that downside risks for all airlines remain high in the aftermath of the American hijacking attacks, SIA's long-term prospects are still strong. "Our view that SIA is the most advanced among the global airlines in creating a global network remains intact," says Philip Wickham, ING Barings aviation analyst.

Mr Ross of UBS Warburg adds that SIA "is probably the world's most robust carrier in terms of balance-sheet strength".

SIA on Monday denied reports that it was interested in bidding for Ansett's assets but Koh Boon Hwee, its new chairman, suggested last week that the airline, which rival Qantas has said has "imperialistic tendencies", would stick to its acquisition strategy.

"When the dust settles, it would tend to accelerate the liberalisation of the industry and allow the consolidation that should have taken place to take place," he said.

"Sometimes the best strategy is to wait and see what happens."