Two months ago, Kingfisher Airlines Ltd’s auditor had said that the carrier needs capital infusion to stay afloat. This news had pushed the company’s shares to historic lows, after which, of course, things got worse, when the firm cancelled a number of flights and it appeared that the carrier was on the brink of bankruptcy.
It turns out that the auditor of Jet Airways (India) Ltdhas made a similar statement. In its limited review of the company’s September quarter results, it has said that the appropriateness of assuming Jet Airways is a going concern is dependent on the company’s ability to raise requisite finances, or generate cash flows in the future to meet obligations.
But while the statements of the auditors of both companies sound equally disconcerting, Jet Airways’ position isn’t as desperate as Kingfisher’s. In the last fiscal year ended March, Jet Airways generated free cash flow of Rs 1,505 crore, more than sufficient to meet its net interest charge of Rs 1,035 crore for the year.
As it turns out, its debt position also decreased by Rs 600 crore last year. Of course, that’s a drop in the company’s ocean of debt, amounting to more than RS 14,000 crore. Still, Jet Airways was in a comfortable position last year, not only being able to meet its interest cost, but also generate additional funds to repay some debt.
This is much better compared with Kingfisher Airlines. Although the company’s debt fell last year, it was because of a large restructuring of its debt, where some banks were issued a large equity stake. Free cash flow was negative and as the auditor put it, even some statutory dues were not paid.
Sure, the story has been much different this year. In the first six months of the year, Jet Airways’ earnings before interest, tax, depreciation and amortization fell to Rs 89 crore. In comparison, its interest burden was Rs 428 crore. It’s not surprising that the company’s auditor has said that an infusion of funds is necessary.
In fact, Jet Airways has been attempting to raise funds for years now, but hasn’t been successful. In difficult years such as the current one, when fuel prices are high and capacity addition is putting a cap on air fares, the need for funds will be even more desperate.
Ironically, when things are difficult, raising equity funds is nearly impossible. As a result, the company will end up with more debt. Of course, it will have some relief in the form of the funds it received from the Godrej Group for its real estate project. But by and large, the situation is dire.
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