Jet Airways, India's largest private air carrier and the second largest by passenger numbers, has begun to trim its financial liabilities through debt repayment, extension of repayment period and deferring of capacity expansion.
The company has a debt burden of Rs 14,500 crore (Rs 145 billion), about five times the equity, and it aims to bring down the debt to below Rs 10,000 crore (Rs 100 billion) by 2011, said two banking sources.
It has also decided to raise about Rs 2,000 crore (Rs 20 billion) from the equity market, partly to repay the liabilities. Sources said the company would prefer the qualified institutional placements route against issuing global depository receipts, as the demand for aviation stocks has weakened abroad.
K G Vishwanath, vice-president of commercial strategy and investor relations, said the company has enough time, of eight to 12 years, to complete repayment of most of the loans. "The comfortable debt-equity position in the aviation sector is four to six times. So, we are at the safer side. When we say the debt is at Rs 14,500 crore, we should also consider the book value of the assets, which is at Rs 13,000 crore (Rs 130 billion). The market value of these assets would be higher, at Rs 15,000 crore (Rs 150 billion)," he added.
Jet, which operates 106 aircraft, including the 23 planes of JetLite, its low-cost carrier, has also deferred the purchase of 13 aircraft for two years. The earlier plan to buy these would have added debt of Rs 7,500 crore (Rs 75 billion). The majority of the new capacity was planned for its domestic operations, which witnessed a 30 per cent dip in revenues in the first quarter.
"We have recently extended the repayment period of the Rs 2,000 crore term loan to five years from two years, for reducing the financial burden. Further, we are not going for major expansion, except some selective spends for the next two years. These moves are aimed at reducing the debt portion, mainly for preparing the ground for boom time," said Vishwanath.
The aviation sector believes the current crisis will continue until the September ended quarter. "The three big players - Air India, Jet Airways and Kingfisher - are massively getting into the low-cost model with a high-cost structure. This will have an impact on their profitability, at least for this financial year. If they address issues such as over-capacity and falling yields, double-digit growth will happen in the next fiscal," said Kapil Kaul, chief executive, Centre for Asia Pacific Aviation.
Jet is spending about Rs 700-1,000 crore (Rs 7-10 billion) annually for servicing the debts taken for earlier aircraft purchase. The yearly payments would help to reduce liabilities in the next two-three years.
The company's interest cost stood at Rs 243.6 crore (Rs 2.44 billion), up 80.95 per cent, in the June ended quarter, owing to higher debt component. It has cash and cash equivalent of Rs 800-900 crore (Rs 8-9 billion) on its books.
In addition to the debt repayments, Jet Airways also has to pay its dues to the oil companies. As on March 31, it had Rs 688 crore (Rs 6.88 billion) of dues. Industry sources said a part of the fund raising through equity dilution would be used for settling the dues.
