Mumbai: Credit rating agency ICRA on Monday downgraded ratings on Jet Airways’ short-term and long-term debt facilities because of the weak yields and poor financial performance of the airline which are a result of its inability to pass on jet fuel price hikes to customers.

ICRA said it has downgraded the long-term rating assigned to the Rs698.9-crore non-convertible debenture programme, the Rs3,574.7-crore long-term loans, the Rs645-crore long-term, fund-based facilities and the Rs600-crore long-term, non-fund based facilities of Jet Airways (India) Limited to ‘BB+’ from ‘BBB-’.

According to ICRA, instruments with ‘BB’ rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

ICRA also downgraded the short-term rating assigned to the Rs3,950.0-crore short-term, non-fund based facilities of Jet Airways to ‘A4+’ from ‘A3’.

ICRA states that instruments with ‘A4’ rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

The outlook on the long-term rating is ‘negative’, ICRA said.

“ICRA believes that the credit profile of Jet Airways will continue to remain stretched in the medium term until the domestic airlines industry is able to pass on the increase in jet fuel prices to the customers through an increase in fares," the ICRA report said, adding that the outlook may be revised to ‘stable’ if the company is able to significantly improve its profit margins through a proportionate increase in yields or a significant reduction in its CASK (cost per available seat kilometres).

“Any major liquidity initiative undertaken by the company is also a positive for the ratings," it said.

Jet Airways did not comment on its credit rating downgrade. Queries sent to the spokesperson of the airlines elicited no response till press time.

Jet Airways had on 23 May reported a loss of Rs1,036 crore, excluding those of its units, for the March 2018 quarter, as the airline saw its revenue decline and costs, especially fuel costs, increase significantly during the quarter.

As of 31 March, 2018 Jet Airway’s net debt stood at Rs8,149 crore, the airline’s chief financial officer and deputy chief executive officer Amit Agarwal said last week.

Of the net debt, aircraft debt stands at Rs2,054 crore, while more than 65% of the total debt is denominated in US dollar term, Agarwal said, adding that the airline may see a rise in debt for the next one or two quarters though the airline’s overall strategy of reducing debt would continue.

Jet Airways continues to have negative networth because of accumulated losses and diminution in the value of its investments in its subsidiary Jet Lite (India) Limited, the ICRA report said.

“The company has repayments of Rs3,120.3 crore due in FY2019, Rs2,444.5 crore in FY2020 and Rs2,167.9 crore in FY2021," it said.

The ICRA report also stated that in the absence of adequate cash accruals, Jet Airways will require to refinance its repayments falling due.

“Continued support from Etihad Airways is fundamental towards turning Jet Airways around and improving its liquidity profile," it said.

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