India's Jet Airways, a major Boeing customer, hits financial turbulence
Jet Airways was once at the forefront of Indiaâs rapidly growing market for air travel, but a challenge from budget carriers and surging fuel prices are backing the airline into a corner. The stock ended at its lowest level since June 2015 as the carrierâs finances deteriorated.
Jet Airways, a substantial Boeing customer, was once at the forefront of Indiaâs rapidly growing market for air travel, but a challenge from budget carriers and surging fuel prices are backing the airline into a corner.
Shares of the carrier, part-owned by Etihad Airways PJSC, plunged 8.5 percent Friday in Mumbai after the company postponed announcing its first-quarter earnings. Thatâs less than a week after denying a report it needs drastic measures to cut costs and bolster its finances. The stock ended at its lowest level since June 2015 as the carrierâs finances deteriorated and the default risk on its debt obligations increased.
Budget airlines such as IndiGo, GoAir and SpiceJet expanded exponentially in the past decade, giving first-time flyers a new opportunity and middle-class families an alternative to full-service carriers that offered lounges and free meals on board. India, the worldâs fastest-growing major aviation market, is also one of the toughest in which to survive, with premium carrier Kingfisher Airlines collapsing and legacy Air India needing repeated state bailouts as ultra-low fares fail to cover their costs.
âJet Airways is facing challenges on all fronts,â Bloomberg Intelligenceâs Singapore-based analyst Rahul Kapoor said. âThe rise in oil prices is having a double whammy on their earnings. They already have a sparse balance sheet compared with other Indian carriers.â
In June, the airline agreed to buy 75 of Boeingâs 737 Max aircraft for about $8.8 billion, taking its backlog for the narrowbody jet to 225. It has also placed an order for 10 Dreamliner 787s, but it may not take them as it reviews its network. It has 121 planes in its fleet, according to its website.
India is one of the toughest markets, where airlines are forced to sell tickets at base prices of as low as 1 rupee (2 cents) to attract the fastest growing middle class in the world. Kingfisher Airlines, started by Indian tycoon Vijay Mallya in 2005, was one of the nationâs leading carriers until it was grounded in 2012 amid mounting debt. Indian airlines are among the biggest customers for the single-aisle planes made by both Airbus and Boeing.
Mumbai-based Jet Airways had total debt of $1.4 billion, and cash and equivalents barely 3 percent of that, for the year ended March 31, 2018, according to Bloomberg-compiled data. The firmâs total debt ballooned to 55.4 times earnings before interest and tax as of March 31, compar ed with 4.9 times the previous year, the data showed.
In a brief statement late Thursday night, the company â" with a market value of $464 million â" said the audit committee didnât recommend the results for the boardâs approval, âpending closure of certain matters.â The company slipped into a loss in the year ended March following two years of profit. The BSE issued a statement Friday seeking full disclosure from the carrier to meet compliance rules.
The companyâs management and auditors needed more time to finalize its accounts, and the board âreadily agreedâ to it, Jet said in a statement Friday. The finalized accounts will be presented to the companyâs audit committee at a later stage, it said without providing a timeframe.
The probability of the airline failing to repay its obligations in the next 12 months is near the highest since October 2015, according to a Bloomberg Default Risk model, which tracks metrics including share price, debt and cash flow. SpiceJetâs risk is the most elevated since last February, and the gauge is little changed for IndiGo, the nationâs biggest airline.
Deputy Chief Executive Officer Amit Agarwal said Jet Airways has regularly met its commitments on loans and is constantly evaluating opportunities to refinance or increase the tenure.
The carrier needs as much as $500 million in cash immediately and must refinance $400 million of debt, backed by a guarantor, said Kapil Kaul, South Asia CEO for CAPA Centre for Aviation, adding no one should expect instant results.
âThey can do that by possibly doing sale and lease-back of their widebodies and getting costs down, especially in the domestic market,â he said. âIf they can recapitalize and restructure, then may be in a couple of years, they can be sustainable.â
Jet Airways stock has tumbled 67 percent this year, making it the worst performing airline stock in Asia Pacific amid investor concerns over its outlook. Indiaâs benchmark Sensex index has gained 11 percent.
âWe need to recover the money and value we have lost,â Jet Airways Chairman Naresh Goyal said at the airlineâs annual general meeting Thursday. âI feel guilty, I feel embarrassed that we have not been able to perform, especially with shareholders who stood with us.â
Abu Dhabi-based Etihad, which owns 24 percent of Jet Airways, said it continues to work constructively with its Indian partner.
Jet Airwaysâs rivals are faring no better either. The entire sector has been hit by rising fuel prices, depreciation of the rupee and debt to fund aircraft purchases and rapid growth. IndiGo, operated by InterGlobe Aviation Ltd., posted a 97 percent drop in net profit, its worst-ever quarterly performance. SpiceJet will be reporting earnings next week.
Jet Airways said last week that itâs implementing several measures to cut costs and increase revenue, in areas including sale s and distribution, payroll and maintenance. The company at the time denied an Economic Times report it had already started firing people and had told some workers to take as much as a 25 percent cut in pay.
âThe stock will remain under severe pressure till thereâs some concrete plan on the table to revive the loss-making airline,â said Devansh Lakhani, a director at Mumbai-based Lakhani Financial Services Ltd.Source: Google News India | Netizen 24 India