Jet Airways unlikely to go far with $300 million lifeline
Jet Airways is said to need at least ₹ 2,500-3,000 crore of cash in the coming quarters, even as it delayed salary payments for July and August
Mumbai: Jet Airways (India) Ltd may need to infuse fresh capital to sustain operations, given that most of the $300 million the airline raised in June may already have been exhausted. A significant portion of this liquidity that came from lease incentives and borrowings from domestic banks has been utilized by the airline to pare debt during the June quarter. It could use the remaining amount in the current quarter, which is considered a lean period for travel, when revenues are expected to decline.
“Jet Airways needs at least ₹ 2,500-3,000 crore of cash in the coming quarters,” an analyst tracking the sector for a foreign brokerage said on condition of anonymity. He added that the airline could be in a tight spot if it could not raise funds.
Jet Airways has also delayed salary payments for July and August. It now plans to disburse the salary for August in two instalments in September, according to an internal note sent to employees by Rahul Taneja, the airline’s chief people officer. The same schedule is expected to be followed for September and October.
The Mumbai-based airline cut its net debt by ₹ 700 crore sequentially to ₹ 7,364 crore as on 30 June. It has scheduled debt repayments of ₹ 2,200 crore during the current fiscal year, Jet Airways’ chief financial officer Amit Agarwal said in a post-earnings conference call with investors in August.
Jet Airways chief executive Vinay Dube had also told analysts that the airline was actively engaged in looking at various debt reduction and funding options, including capital infusion and monetization of assets, including the company’s stake in its loyalty programme.
An emailed query to Jet Airways on its fundraising plans did not elicit an immediate response.
“The airline can raise about ₹ 1,500 crore by monetizing the 50% stake in its frequent-flyer loyalty programme, JetPrivilege, and about $30-40 million each for its wide-body planes that it plans to sell and lease back,” said the analyst mentioned before.
Blackstone has expressed interest in a deal that could value JetPrivilege at ₹ 3,000-4,000 crore, Bloomberg reported on 16 August. Jet Airways, however, denied the news.
The Economic Times on 5 September reported that Jet Airways, despite not publicly disclosing a valuation for its loyalty programme, had cited a report by global independent consultant OnPoint, which has valued the business at $1.13 billion (₹ 8,136 crore), to potential investors.
Jet Airways had in August said that it would consider raising money by conducting sale and lease-back (SLB) of 16 wide-body aircraft, including the Boeing 777 and the Airbus A330, that it owns. The airline is also considering wet leasing its ATR fleet to raise money.
“Though the management is evaluating all possible avenues of raising funds and expediting its turnaround strategy of reducing costs and enhancing revenue, it is racing against time in the current adverse industry scenario of rising competition amid cost pressures,” Santosh Hiredesai and Chalasani Teja, sector analysts with SBICap Securities, said in a research report on 28 August. “Monetization of the JetPrivilege programme, capital raising, wet-leasing of ATR aircraft, and SLB of wide body aircraft will be evaluated to raise funds to tide though the current trying times.”
The rise in costs at Jet Airways comes at a time when domestic airlines have been pummelled by high jet fuel prices, a falling rupee and intense competition, restricting their ability to raise fares sufficiently to cover higher costs.
In the past year, Brent crude has gained 44%, while the rupee has weakened 12% against the dollar.
Given the existing challenges, not everybody is convinced that Jet Airways will be able to achieve the desired results.
“The sharp rise in oil prices coupled with a depreciating rupee are key concerns. Jet Airways’ non-fuel cost-cutting targets appear increasingly ambitious in light of recent results,” said analysts at Edelweiss Securities in a report dated 28 August. “In our view, any recovery from the prevalent pricing war remains elusive.”
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