Mumbai: Indian airlines will need equity infusion of about 35,000 crore over the next 3-4 years to reduce their debt burden, rating agency ICRA Ltd said on Thursday.

“In the near term, the balance sheets of Indian carriers are expected to continue to remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and/or by way of equity infusion," said Kinjal Shah, vice-president and co-head (corporate sector ratings) at ICRA, said in a report released Thursday.

“The overall debt levels in the industry remain high and would require equity infusion to bring the same to reasonable levels. ICRA believes an equity infusion of about 350 billion ( 35,000 crore) would be needed over the next 3-4 years," Shah added.

Higher fuel prices and a weakening rupee have increased operating costs at airlines. A weak rupee adds to their woes as most of their expenses are dollar-denominated.

Besides, intense competition in the domestic sector has prevented airlines from fully passing on the costs to the passengers.

In October, most airlines saw a significant drop in passenger load factor as they tried to pass on increasing costs to passengers by increasing fares. At the same time, large aircraft orders have led to over-capacity, reducing their ability to raise fares.

“While the average ATF (air turbine fuel or aviation fuel) prices have witnessed a Y-o-Y increase of about 35% during April-November 2018, the average INR depreciated by 7.8% against the US$ during this period. This has resulted in an increase in the CASK of the airlines, not buttressed by an increase in yields. In fact, yields have declined for most airlines despite the surging costs," the ICRA report said.

“This is due to the price sensitive nature of the industry which is plagued by rising capacities, with India’s aviation sector likely to have significant over-capacity in the next two-three years," it added.

In the September quarter, all three listed Indian airlines reported losses.

Naresh Goyal-led Jet Airways (India) Ltd posted a net loss of 1,297.46 crore, excluding its units, its third successive loss. It had a net profit of 49.63 crore in the same period a year earlier.

SpiceJet Ltd’s standalone net loss, excluding results of SpiceJet Merchandise and SpiceJet Technic, stood at 389.37 crore at the end of the September quarter. It had a profit of 105.27 crore a year earlier.

The country’s largest domestic airline, IndiGo (InterGlobe Aviation Ltd), reported a loss of 652.13 crore in Q2, its maiden quarterly loss since going public in November 2015.

CRISIL Ratings had earlier in November said that Indian airlines may post their steepest loss in a decade this financial year, slammed by rising operating costs from high jet fuel prices and a weak rupee.

“At an estimated 9,300 crore, the industry’s losses at EBIT (earnings before interest and tax) level would surpass the 7,348 crore blow it was dealt in fiscal 2014," CRISIL had said in a report.

Airlines in the country posted “aggregate profit of 4,000 crore on an average at the EBIT level" from FY14 to FY18, when global crude oil prices stayed low, according to the CRISIL report.

In October, IndiGo, SpiceJet and Jet Airways have seen downgrading of credit rating for some of their loan facilities, as they face rising expenses and limited room to hike fares amid intense competition.

However, oil prices have steadily declined recently, while rupee has strengthened against the dollar. In the past year, the benchmark Brent crude has lost 2.74% to $58.17 a barrel, while the rupee has weakened 7.92% to 69.85 to a dollar during the same period.

SpiceJet’s chief financial officer Kiran Koteshwar had earlier this month told Mint that as long as jet fuel stays at $60-65 a barrel, and rupee at 68-70 against the dollar, airlines like SpiceJet can sustain operations comfortably and even report profits.

“We don’t expect steep increases in macro parameters (oil and rupee)," Koteshwar had said as he forecasted crude oil to stay at $65-70 a barrel in the coming quarters.

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