Jet Airways’ Fate Hinges On Recapitalisation After Second Straight Quarterly Loss
Recapitalisation has become a must for India’s second largest airline Jet Airways Ltd. amid a potential increase in debt after it reported highest-ever loss in the last three years in the first quarter. The Naresh Goyal-led airline reported a loss for the second consecutive quarter due to a weaker rupee, higher fuel prices and competitive fares.
Jet Airways’ total debt of Rs 8,424 crore would have increased as the company reported a cash loss of more than Rs 1,000 crore during April-June, according to data compiled by BloombergQuint. Due to this potential increase in debt, recapitalisation is imperative for the company for continuity of business operations, domestic brokerage SBICAP Securities said in a note.
The firm’s total debt ballooned to 12 times earnings before interest, tax and depreciation and amortisation as of March 31, compared with six times the previous year.
Jet Airways is facing a cash crunch as the competition intensifies in the Indian market leading to air fares so low that airlines can barely cover costs. Passenger yields, which measure average earnings made by airline company by flying a passenger per kilometre, for the operator declined by close to 2.5 percent.
Rising global crude prices and inefficient aircraft increased the fuel cost per available seat kilometre, or CASK, for Jet Airways during the April-June period. Aviation turbine fuel prices were higher by 27 percent compared to last year, but airline company’s fuel cost per seat was higher by 37 percent. This is despite the fact that the airline has higher capacity on international routes where it enjoys lower taxes. That coupled with a weakening rupee led to erosion of profit margin for Indian airlines.
Also after seven quarters, the company failed to reduce its ex-fuel cost during April-June due to foreign exchange losses.
Along with foreign exchange losses, employee, finance and aircraft maintenance costs also remained higher for the carrier. Jet Airways, which is looking to cut costs, has an employee cost that is even higher than that of state-owned Air India Ltd. Finance and aircraft maintenance costs remain higher due to higher debt and older fleet.
Jet Airways has plans to infuse funds, sell stake in its loyalty program and cut as much as Rs 2,000 crore in costs over the next two years, as part of a turnaround plan after reporting losses in at least 10 of the 16 financial years.