Jet, Set, Stop!

Jet Air­ways seeks to post­pone loan re­pay­ment to ease cash crunch, re­duce un­prof­itable do­mes­tic routes and is con­sid­er­ing lay­ing off more em­ploy­ees in non-core ar­eas

The Day After - - CONTENT - By Asit MAnohAr Feed­back on:re­porter@dayaf­terindia.com

Jet Air­ways In­dia Ltd. has ap­proached banks for a mora­to­rium on loans and asked for fresh funds to ease a cash crunch, ac­cord­ing to peo­ple with di­rect knowl­edge of the mat­ter, adding to signs the car­rier is slid­ing deeper into trou­ble.

The air­line has al­ready grounded about a dozen planes as part of a re­view of its net­work aimed at re­duc­ing un­prof­itable do­mes­tic routes, said one of the peo­ple, who asked not to be iden­ti­fied be­cause the plans aren’t pub­lic. The Mum­baibased car­rier is also study­ing lay­ing off more em­ploy­ees in non-core ar­eas, the per­son said.

The moves show In­dia’s biggest fullser­vice car­rier — un­prof­itable in nine of the past 11 years — is strug­gling for sur­vival as two-cent fares in one of the world’s most ex­pen­sive places to buy jet fuel ne­gate the gains from a surge in do­mes­tic pas­sen­ger num­bers. In­dian banks, hav­ing suf­fered set­backs from lend­ing pre­vi­ously to failed King­fisher Air­lines, had ear­lier re­buffed Jet Air­ways with their re­luc­tance to ex­tend ad­di­tional loans to the com­pany.

A rep­re­sen­ta­tive for Jet Air­ways couldn’t com­ment im­me­di­ately. Shares of the com­pany jumped as much as 4 per cent to 220 ru­pees on Tues­day in Mum­bai on op­ti­mism any suc­cess­ful ar­range­ment with lenders could help the car­rier get its fi­nances back in or­der.

Jet Air­ways has the high­est por­tion of short-term debt to to­tal debt com­pared to its Asian peers at 46%.

For Naresh Goyal-led Jet Air­ways, it’s crit­i­cal to raise funds as the air­line is bat­tling a de­pre­ci­at­ing lo­cal cur­rency, in­tense lo­cal com­pe­ti­tion from bud­get car­ri­ers and surg­ing fuel prices. The banks have asked for a de­tailed ac­tion plan from Jet Air­ways on pro­pos­als to sell shares, the peo­ple said.

The car­rier was one of the first to take off in the early 1990s af­ter In­dia opened up avi­a­tion to non-state car­ri­ers. Jet Air­ways has shared lit­tle de­tails of a turn­around plan it an­nounced in Au­gust, while the stock has plunged 75 per cent this year, shrink­ing the mar­ket value of the com­pany to about $325 mil­lion.

Among the pro­posed steps it an­nounced were the sale of the car­rier’s stake in its fre­quent-flier pro­gram, cap­i­tal in­fu­sion, par­ing of debt and cut­ting costs by as much as 20 bil­lion ru­pees ($271 mil­lion) over the next two years. While Black­stone Group LP and TPG Cap­i­tal were re­port­edly in talks for the stake in the loy­alty pro­gram, JetPriv­i­lege, the car­rier hasn’t given any in­di­ca­tion it is any­where close to a deal.

Jet Air­ways owns 49.9 per cent of JetPriv­i­lege, with the rest held by Eti­had Air­ways PJSC, which sep­a­rately owns 24 per cent of the In­dian car­rier.

The Times of In­dia re­ported last week that Tata Group held pre­lim­i­nary talks to buy a “large” stake in Jet Air­ways, seek­ing man­age­ment con­trol. The car­rier said the re­port was “highly spec­u­la­tive.” Tata al­ready op­er­ates two air­lines in In­dia in part­ner­ship with Sin­ga­pore Air­lines Ltd. and AirAsia Group Bhd.

Cash and equiv­a­lents at Jet Air­ways dwin­dled to 3.2 bil­lion ru­pees as of March, from as high as 20.8 bil­lion ru­pees three years ear­lier, sig­nal­ing the ur­gency to raise cap­i­tal and tide over any squeeze.

Net debt was at 73.6 bil­lion ru­pees as of June 30, 65 per cent of that de­nom­i­nated in dol­lars, Chief Fi­nan­cial Of­fi­cer Amit Agar­wal said in Au­gust. The lo­cal cur­rency’s 13 per cent slide against the green­back is mak­ing mat­ters worse by threat­en­ing to drive up plane fi­nanc­ing costs.

As Jet Air­ways strives to get its fi­nan­cial po­si­tion in or­der, bud­get car­rier and ri­val IndiGo, op­er­ated by In­terGlobe Avi­a­tion Ltd., is likely to gain mar­ket share, ac­cord­ing to Bloomberg In­tel­li­gence an­a­lysts Rahul Kapoor and Chris Muck­en­sturm.

Jet Air­ways has 124 air­craft in its fleet, ac­cord­ing to its web­site, com­pared with IndiGo’s 159 as of end-March.

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