INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: After another dismal financial performance with Rs 1,300-crore net loss in the June 2018 quarter, Jet Airways needs
to address two glaring questions
One, why was the airline unable to turn around the business even after it secured fresh funding from UAE based Etihad Airways five years
agoRs Two, will the latest turnaround plan be enough to revitalise the operationsRs
When Etihad bought 24 per cent stake in Jet in 2013,
the latter had 25.2 per cent share in the Indian market while Indigo, its aggressive peer, had 27.4 per cent share
Failing to enhance capacity, a strategy which Indigo diligently followed, and entry of new airlines such as Air Asia and Vistara affected
As of FY18, it had debt of Rs 8,420 crore, of which 77 per cent was non-aircraft debt
A large part of this debt was used to tackle financial losses and working-capital requirements.
Analysts point out that the non-aircraft
debt in the rupee terms was acquired at a high cost which increased interest expense significantly
SpiceJet and Indigo had nonfuel CASK of Rs 2.53 and Rs 2.04 respectively.
Jet is at a stage where survival is a major concern, while
expansion is almost out of question
Analysts point out that the latest measures proposed by Jet would not be adequate enough
The airline has raised Rs 2,000 crore in the form of advance lease incentives and borrowings from domestic banks, which will be used to
Measures such as induction of cost-efficient planes, wet leasing of aircraft and monetising JetPrivilege programme would not be adequate to
For FY18, the company had interest expense of Rs 848 crore, which means it would not have enough funds to service the debt
This may pose a risk of default
Also, its accumulated losses have wiped out its net worth, which may make future funding either in the form of borrowings or a stake sale
A recourse the airline may resort to is seeking more funds from Etihad through preferential allotment
conquer the fast growing domestic civil aviation.
