Mumbai: Jet Airways (India) Ltd, the country’s largest carrier by passengers, will cut debt by turning rupee loans into dollar-denominated ones, raise money through the development of land it owns, and sell at least 20 planes and lease them back.
The strategy is aimed at reducing its Rs 13,737 crore debt burden, K.G. Vishwanath, vice-president (commercial strategy and investor relations) at Jet Airways, said in a conference call with analysts on Monday.
Also See Jet in a Nutshell (PDF)
The Naresh Goyal-promoted Jet Airways been looking to raise $400 million (around Rs 1,780 crore) for the last two-three years by selling fresh shares to qualified institutional buyers to lower debt. It wasn’t able to do so owing to delays in government approvals and the global economic meltdown.
“Jet Airways, year-on-year, will be able reduce anywhere between Rs 1,500 crore and Rs 2,000 crore of debt every year, considering the measures taken by the airline,” Rashesh Shah, an analyst at domestic brokerage ICICI Securities Ltd, told Mint.
Vishwanath, who joined the airline as a management trainee and risen to become a vice-president in 10 years, said Jet will get upfront payments of Rs 500-550 crore from Godrej Properties Ltd, which will develop the airline’s 1.47-acre plot in Bandra-Kurla Complex, a business district in suburban Mumbai.
The airline had won rights to develop the space in a 2008 auction by the Mumbai Metropolitan Region Development Authority, the apex body for planning and coordination of development activities in Mumbai.
Jet Airways will get 250,000 sq. ft of free space, which the carrier can either occupy or lease out, as part of the deal with Godrej Properties.
“Out of (the) total high-cost debt of Rs 3,500 crore, we have converted Rs 1,600 crore rupee loan with an average interest rate of 12.25% into US dollar loans with average interest rates at 6.8%. We would be converting another Rs 500 crore (of) rupee loans in the next few months,” Vishwanath said.
A presentation by the company said it will save $15 million annually by converting rupee loans into dollar loans. Vishwanath said the airline will have only Rs 500-800 crore as high-cost loans while working capital loans are still carrying 12% interest rates. Jet’s liability on aircraft-related loans is Rs 900 crore a year.
“We are expecting to bring down the debt burden faster with the capital-raising plan and cash profit that we are making,” he said.
Jet Airways, Air India and Kingfisher Airlines Ltd have a combined debt of around $13.5 billion, with an annual interest burden well in excess of $1 billion, according to a report by consulting firm Centre for Asia Pacific Aviation released in June. This consists of around $7.5 billion in debt related to aircraft purchases and $6 billion of working capital and other loans, according to the report.
Jet Airways is also looking at selling its planes and leasing them back, with each such transaction fetching $7-8 million. “We have 20 Boeing 737 planes on our books intended for sale and leaseback,” said Vishwanath.
However, the airline will have to approach the high court for approval for selling and leasing back the planes as Jet Airways and Sahara group have been fighting in court over the acquisition of JetLite (India) Ltd. Jet Airways bought Sahara Airlines—which operated Air Sahara—in April 2007, and later rebranded it JetLite.
Sahara India had on 26 March filed an application with the Bombay high court claiming Jet Airways had defaulted on payments towards the purchase of Air Sahara, and had sought the court’s permission to seize Jet’s assets.
The next hearing in the Jet-Sahara case is on 17 November.
The latest financial results have been encouraging for Jet Airways. The airline, which has a market share of 26.9% along with its low-fare subsidiary JetLite, reported a stand-alone net profit of Rs 12.40 crore for the quarter ended 30 September against a net loss of Rs 406.69 crore in the same period last year.
Jet Airways rose marginally on the Bombay Stock Exchange on Monday to close at Rs 811.80; the benchmark Sensex rose 1.61% to end at 20,355.63 points.