Jet to sell and lease back aircraft to meet expenses

Jet to sell and lease back aircraft to meet expenses
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First Published: Tue, Jan 20 2009. 12 56 AM IST

Hard times: A Jet Airways aircraft at Indira Gandhi International Airport, New Delhi. Carriers such as Jet Airways are seeking cash to fund operations amid a slowdown that’s causing passenger traffic
Hard times: A Jet Airways aircraft at Indira Gandhi International Airport, New Delhi. Carriers such as Jet Airways are seeking cash to fund operations amid a slowdown that’s causing passenger traffic
Updated: Tue, Jan 20 2009. 12 56 AM IST
Mumbai: Hit by a credit crunch and a third-quarter loss of Rs214 crore, Jet Airways (India) Ltd plans to sell and lease back at least one of the 11 wide-body A330 aircraft in its fleet in addition to raising a bank loan to meet immediate operational costs, a company executive said on Monday.
The airline expects a “comfortable cash position for this fiscal” after borrowing Rs750 crore, said K.G. Vishwanath, senior general manager for management information systems and investor relations at the airline, India’s largest carrier by passengers flown.
The airline is in talks with domestic lenders for the loan, Vishwanath told an analysts’ conference. The airline would raise the funds from two nationalized banks, The Economic Times reported on Monday, citing chief executive officer Wolfgang Prock-Schauuer.
Hard times: A Jet Airways aircraft at Indira Gandhi International Airport, New Delhi. Carriers such as Jet Airways are seeking cash to fund operations amid a slowdown that’s causing passenger traffic to decline. Ramesh Pathania / Mint
The amount will be raised as a term loan and used to fund the airline’s working capital requirements, said a senior Jet Airways executive who did not want to be identified. Another person close to the development, who also didn’t want to be named, said the carrier is in talks with State Bank of India.
“We have plans to do a sale-and-leaseback of A330 during this quarter. The details of sale-and-leaseback are yet to be finalized,” Vishwanath said at the conference. Jet Airways had raised $22 million (Rs106.9 crore) by selling one Airbus SAS-made A330 earlier that it leased back.
The airline raised Rs1,250 crore from Punjab National Bank, or PNB, and Indian Overseas Bank last month to meet operational cash requirements. In the case of the PNB loan, Jet Airways pledged its international ticket sales, whereby ticket revenue would go into a special bank account from which the lender would first withdraw its share and the balance would go to the airline.
Loss-making Indian carriers, including Jet Airways, Kingfisher Airlines Ltd and state-run Air India, are seeking cash to fund operations amid a slowdown that’s causing passenger traffic to decline. The airline industry’s losses this fiscal are estimated to mount to a collective $2 billion. “Pressure will continue on full-service carriers over the coming months,” wrote Kapil Kaul, chief executive officer (Indian subcontinent and West Asia) of the Centre for Asia Pacific Aviation, or Capa, an international aviation consulting firm, in a 12 January report.
Jet Airways, Kingfisher and Air India “may need cash cover till 2010 and the amount raised might not be enough”, Kaul wrote. “The near break-even situation in December 2009 has given the airlines a temporary breathing space but the overall fiscal environment continues to be uncertain.”
The report also indicated that National Aviation Co. of India Ltd, or Nacil, that runs Air India, would likely receive a capital infusion of more that $600 million from the government in the next 30 days. “Kingfisher appears to be closer to securing funds but is yet to finalize” (an agreement), the report added.
A senior Nacil executive, who didn't want to be named because he is not authorized to speak to the media, said the airline is in talks with banks to raise working capital even as it awaits financial help from the government.
Nacil had in December sought at least Rs4,000 crore from the Union government in equity and debt, given continuing losses and the costs of merging Air India and the erstwhile Indian Airlines.
Last week, civil aviation minister Praful Patel said the expansion of the equity base in Nacil is expected to come up for cabinet approval in February when Parliament reconvenes.
Kingfisher Airlines, the country’s second largest private carrier by number of passengers flown, is also in the process of raising at least Rs1,500 crore to meet working capital requirements. Last year, Kingfisher merged with Deccan Aviation Ltd, which operated the erstwhile Air Deccan, the country’s largest low-fare carrier.
“The airline is in talks with various Indian banks and overseas financial institutions to raise funds,” said another person close to the development, who did not want to be named. The carrier recently raised Rs1,000 crore from ICICI Bank Ltd to meet its working needs.
Even low-cost carriers are struggling with a shortage of funds. The Capa report said Delhi-based SpiceJet Ltd will need a capital infusion because its current cash resources may run out in a few months. New York-based private equity fund WL Ross and Co. Llc., had in August agreed to invest $80 million in SpiceJet.
As the aviation industry struggles, the Indian government is also considering allowing foreign airlines to buy up to a 25% stake in local carriers, Patel said last week. However, a Mumbai-based analyst at an international brokerage, who didn’t want to be named, said the proposal may not be implemented any time soon as the general election is due in May.
SpiceJet’s chief executive officer Sanjay Aggarwal said foreign investment would be welcomed by the industry. “It will allow funds and expertise to come into India and allow the aviation industry to mature and be more competitive,” Aggarwal said. However, he maintained that SpiceJet is “not in a situation where we need any financial investment. If other airlines are in pursuit of funds it will certainly be a good move for them”.
Aditya Ghosh, president of IndiGo, a Delhi-based low-fare airline operated by InterGlobe Aviation Pvt. Ltd, also denied a cash crunch, saying, “We have no need to raise any funds.”
Airlines’ ability to raise funds by diluting promoters’ equity has been dented by the global economic and financial crisis. Jet Airways and Kingfisher Airlines have both postponed such plans. Private equity players are also shy of investing in Indian carriers, given continuing losses.
Prock-Schauer, the CEO of Jet Airways, said the airline has no intention of selling a stake to any foreign airline. “Globally, foreign airlines are not financially healthy to make investments in other airlines,” he said.
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First Published: Tue, Jan 20 2009. 12 56 AM IST