Jet Airways: debt repayment a cause for concern

Jet Airways: debt repayment a cause for concern
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First Published: Mon, Jan 19 2009. 08 45 AM IST

Updated: Mon, Jan 19 2009. 08 45 AM IST
Jet Airways (India) Ltd reported a decent operational performance for the quarter ended December.
Ebitdar, or earnings before interest, tax, depreciation, amortization and aircraft lease rentals, rose by 23.1% year-on-year to Rs358 crore, resulting in a profit margin of 12%. But at the pre-tax level, losses continued to pile up mainly because of higher interest costs and aircraft lease rentals. The company’s loss, excluding non-operating income, rose to Rs290 crore, from Rs221.6 crore in the year-ago period.
At the operating level, the international segment drove profit growth, as capacity rationalization took a toll on both revenue and profit in the domestic segment.
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Domestic revenue fell by 14% and the segment’s Ebitdar declined by 12% to Rs174.3 crore last quarter. The international segment doubled Ebitdar to Rs183.5 crore. This is perhaps the first time that the profit from international operations has surpassed that of the domestic segment.
More importantly, the domestic Ebitdar of Rs174.3 crore was insufficient to service lease rentals worth Rs137.7 crore and interest cost worth Rs104.9 crore.
According to a research report by brokerage and investment banker CLSA, the company has received a breather by way of a $300 million (Rs1,464 crore) loan, which should take care of its cash flow requirements for the next one year. But with debt-equity ratio of a whopping 17.8, adjusted for revaluation reserves, financing is a major worry.
The company’s plans to raise equity capital have been unsuccessful for some time now and given the current market scenario may remain a distant reality. The only option therefore is to improve operational cash flow to service interest costs and debt repayments.
The sharp fall in fuel prices is a big positive for the company. CLSA estimates this would result in the break-even point reducing to 63-64% of capacity utilization for the domestic segment.
With the domestic fleet now operating at a load factor of about 67-68%, it has turned profitable. But it remains to be seen how long load factors will be high.
Given the weak economic environment, load factors may come under pressure. One good thing is that the industry is rationalizing capacity, but so far the rate at which demand has fallen has outpaced the capacity reduction.
While these concerns are plaguing the stock, the bigger worry of course is that of debt servicing. It’s no wonder that Jet shares have fallen at a time at a time when fuel prices have corrected sharply in the last few months.
Graphics by Paras Jain/Mint
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First Published: Mon, Jan 19 2009. 08 45 AM IST