JET AIRWAYS FACING SEVERE PRESSURE
Indian airline faced with rising competition, surging fuel prices, deteriorating finances
JET Airways India Ltd was once at the forefront of India’s rapidly growing market for air travel, but a challenge from budget carriers and surging fuel prices are backing the airline into a corner.
Shares of the carrier, partowned by Etihad Airways PJSC, plunged as much as 15 per cent yesterday after the company postponed announcing its firstquarter earnings, less than a week after denying a report that it needs drastic measures to cut costs and bolster its finances.
The stock is headed for its worst year since 2011 as Jet Airways’s finances deteriorated and the default risk on its debt obligations increased.
Budget airlines, such as IndiGo, GoAir and SpiceJet expanded exponentially in the past decade, giving first-time flyers a new opportunity and middle-class families an alternative to full-service carriers that offered lounges and free meals on board.
India, the world’s fastest-growing major aviation market, is also one of the toughest in which to survive, with premium carrier Kingfisher Airlines collapsing and legacy Air India needing state bailouts as low fares fail to cover its costs.
“Jet Airways is facing challenges on all fronts,” said Bloomberg Intelligence’s Singapore-based analyst Rahul Kapoor. “The rise in oil prices is having a double whammy on its earnings. It already has a sparse balance sheet compared with other Indian carriers.”
Jet Airways had a total debt of 94.3 billion rupees (RM5.58 billion), and cash and equivalents of 3.2 billion rupees as at March 31, according to Bloomberg-compiled data. The firm’s total debt ballooned to 55.4 times earnings before interest and tax as at March 31, compared with 4.9 times the previous year, the data showed.
On Thursday, the company — with a market value of US$464 million (RM1.895 billion) — said the audit committee did not recommend the results for the board’s approval, “pending closure of certain matters”.
The company slipped into a loss in the year ended March following two years of profit. The probability of the airline failing to repay its obligations in the next 12 months is near the highest since October 2015, according to a Bloomberg Default Risk model.
Jet Airways deputy chief executive officer Amit Agarwal said the company had regularly met its commitments on loans and was evaluating opportunities to refinance or increase the tenure.
The carrier needs US$500 million in cash immediately and must refinance US$400 million of debt, backed by a guarantor, said CAPA Centre for Aviation (South Asia) chief executive officer Kapil Kaul, adding that no one should expect instant results.
“It can do that by doing sale and lease-back of its widebody (aircraft) and cutting down costs, especially in the domestic market. If it can recapitalise and restructure, then may be in a couple of years, it can be sustainable.”
In June, the airline agreed to buy 75 Boeing 737 Max aircraft for about US$8.8 billion, taking its backlog for the narrowbody jet to 225. It has also placed an order for 10 Dreamliner 787, but it may not take them as it reviews its network.
It has 121 planes in its fleet, according to its website.