'Jet loses Rs 50 mn to Rs 100 mn a day'

Signs of financial stress were visible when the airline reported a loss of Rs 10.40 billion.
Aneesh Phadnis and Abhijit Lele report.

Five years after it sold 24 per cent in the company to Abu Dhabi-based Etihad Airways, Naresh Goyal-led Jet Airways is facing financial turbulence again.

"The airline is losing Rs 50 million to Rs 100 million daily in operations. Banks have not acceded to requests for deferring payments. They are not willing to restructure loans, either. If things continue the way they are, the airline will begin defaulting on payments," said a source familiar with the developments.

Sources say banks are also wary of rescheduling loan payments, leading to fears of defaults.

As a cost-cutting measure, the airline has implemented a 5 to 25 per cent pay cut for its senior management and is requesting pilots and engineers to agree to pay reduction.

Though the airline's CEO Vinay Dube said recent media reports about the sustainability of the airline and a possible stake sale were not only factually incorrect but also malicious, sources indicated the airline's financial situation was indeed grim.

A media report said the management told pilots the airline would not be able to survive beyond 60 days unless urgent steps were taken to cut cost.

Jet's stock shed 7 per cent and closed at Rs 308 on the Bombay Stock Exchange on Friday, August 10.

Lenders said they were concerned about the financial health of the airline, which has huge repayment obligations spread over three years.

"The borrower is meeting payment timelines for now and is not a special mention account. However, we are hesitant to take any additional exposure," said a senior bank official.

Another banker said, "We are limiting our exposure to the company and, in fact, want to reduce it if possible. However, the latter is difficult, given the large debt levels. The account is under watch and lenders will meet in the next few weeks to review the status and look at ways to address stress."

The Airports Authority of India, which operates Delhi and Mumbai airports, a State oil-marketing company and a catering company said the airline was making timely payments.

But with heightened competition and increasing cost pressure, the airline is struggling to make money. It had delayed salary payments for March. Vendor payments too have been stretched.

'The company has repayments of Rs 31.20 billion due in FY19, Rs 24.44 billion in FY20 and Rs 21.67 billion in FY21. In the absence of adequate cash accruals, the company will require to refinance its repayments falling due,' credit rating agency ICRA said, while downgrading the credit rating to the airline's long-term debt to BB+ in May.

'While the company has been undertaking several liquidity initiatives, timely funds tie-up is a key rating sensitivity,' ICRA added.

Signs of financial stress were visible when the airline reported a loss of Rs 10.40 billion in the fourth quarter of FY18.

The airline had made a profit in the three preceding quarters though its profit declined on low other income in the first nine months of the fiscal year.

Other income includes profits from sale and lease of aircraft and gains from real estate development.

In a statement, Dube said despite the high-growth environment, the aviation industry was passing through a tough phase, given the depreciating rupee and the mismatch between high fuel prices and low fares.

'Jet Airways has been in existence for over 25 years and through the years has been successful in combating such business volatility,' Dube said.

'In line with the company's stated focus of creating healthier and more resilient business it has been implementing several measures to reduce costs as well as realise higher revenues for desired business efficiencies. Some of the areas include sales and distribution, payroll, maintenance and fleet simplification,' he added.

The airline, Dube said, was confident that the various transformation initiatives identified and under implementation by the company will help in addressing the current issues.