Mumbai/New Delhi: Jet Airways (India) Ltd will sell 9-10 Boeing 737 planes by April and lease them back, raising about Rs 666 crore largely to pare debt.
Jet, the country’s biggest airline by passengers carried, will also turn its focus this year to its low-fare business to take on smaller budget airlines that have grown exponentially in recent years. As on 31 December, Jet had a debt of Rs 13,942 crore.
Branding strategy: The airline will rename JetLite as Jet Airways Konnect by April. Photo: Hemant Mishra/Mint
A sale-and-leaseback deal allows airlines to generate additional capital and is often a stop-gap arrangement to project a healthier balance sheet as debt on the planes will not be reflected on their books.
Air India, InterGlobe Aviation Ltd (that runs IndiGo) and SpiceJet Ltd have used this method to reduce their debt.
Jet sold and leased back five aircraft engines between October and December to raise Rs 76 crore, as part of its efforts to reduce debt, said M. Shivkumar, senior vice-president (finance). Jet will get Rs 666 crore by selling and leasing back the 737 planes, he added. The airline will have a cash surplus of $10 million (around Rs 50 crore) per plane, after repaying the debt on the aircraft.
Jet Airways operates a fleet of 101 aircraft, of which it owns 40 planes - 18 wide bodies and the rest 737s.
A senior analyst at a domestic brokerage said the sale-and-lease back will not ease the debt burden, but going forward the capability of increasing fares on domestic and international routes would provide better prospects. He did not want to be identified.
As for the low-fare focus, the airline will rename JetLite as Jet Airways Konnect by April. Both are existing all-economy brands, but JetLite, which was Air Sahara before Jet bought it in 2007, is run under a separate subsidiary.
“The merger of balance sheets is not contemplated as (of) this moment,” said Shivkumar, adding that as passengers will have clearly defined options—one full-fare and the other budget - to chose from.
“We will be focusing a lot on JetLite business this year,” Shivkumar told analysts in a separate call on Monday.
With a market share of 20%, low fare airline IndiGo became the nation’s second largest airline by market share beating Air India and Kingfisher Airlines Ltd, both full service airlines. SpiceJet, the second-largest low fare carrier, has a market share of 16.1% for the December quarter.
“The brand value of Jet Airways Konnect will be more after branding and we will be able to charge more,” said K.G. Vishwanath, vice-president, commercial strategy and investor relations, Jet Airways.
JetLite will remain a legal entity, a shell company that will continue to own the planes operated under Jet Airways Konnect.
Over the next one-and-a-half years, JetLite will see at least six aircraft leases expire and in 12-18 months it will have a fleet of 20 new aircraft, including some existing ones.
The new aircraft will have 180 seats, much like that of IndiGo’s, the country’s top budget airline.
Overall, Jet has cancelled orders for two long-range Boeing 777 aircraft that can fly to Europe and the US, and instead placed orders for seven Boeing 737 medium-haul aircraft that can fly distances within India and to West Asia.
It now has an order book with Boeing for 46 aircraft that are to be delivered between 2012 and 2016. Besides these, 10 Boeing 787s are scheduled for delivery from 2014.
In calendar 2012, Jet’s capacity will remain largely “sedate”, Shivkumar said, with only a 5% increase expected.
While Jet expects a possible reduction in fleet capacity at Air India and Kingfisher Airlines this year, it is uncertain how the leading budget carriers IndiGo and SpiceJet will use their new capacity for their international and domestic operations. “So we are looking at a -5% to +5% capacity addition (in the industry),” said Vishwanath. “Capacity addition will not be a cause for concern this year.”
Jet has posted a fourth straight quarterly loss of Rs 122.82 crore. The loss would have been higher by Rs 360 crore in the December quarter but for a gain of Rs 179 crore from fluctuations in the rupee’s exchange rate, the Rs 76 crore profit from selling and leasing back aircraft engines, and a profit of Rs 102 crore from the sale of development rights of its property to Godrej Properties Ltd.
Shares of Jet Airways rose 4.3% to close at Rs 241.60 a piece on Monday on BSE, while the exchange’s benchmark Sensex gained 0.08%.
pr.sanjai@livemint.com