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 nation's 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 Airbus SE and Boeing
Mumbai-based Jet Airways
had total debt of 94.3 billion rupees ($1.4 billion), and cash and equivalents of 3.2 billion rupees for the year ended March 31, 2018, according to Bloomberg-compiled data. The firm’s total debt ballooned to 55.4 times earnings before interest and tax as of March 31, compared to 4.9 times the previous year, the data showed.
In a brief statement late Thursday night, the company -- with a market value of $464 million -- said the audit committee didn’t recommend the results for the board’s approval, “pending closure of certain matters.” The company slipped into a loss in the year ended March following two years of profit.
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. SpiceJet’s risk is the most elevated since last February, and the gauge is little changed for IndiGo, the nation’s 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.
“They can do that by possibly doing sale and lease-back of their widebodies and getting costs down, especially in the domestic market,” he said. “If they can recapitalize and restructure, then maybe in a couple of years, they can be sustainable.”
In June, the airline agreed to buy 75 of Boeing’s 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 787, but it may not take them as it reviews its network. It has 121 planes in its fleet, according to its website.
Jet Airways stock has tumbled 66 per cent this year, making it the worst performing airline stock in Asia Pacific amid investor concerns over its outlook. India’s benchmark Sensex index has gained 11 per cent.
“We need to recover the money and value we have lost,” Jet Airways Chairman Naresh Goyal said at the airline’s annual general meeting Thursday. “I feel guilty, I feel embarrassed that we have not been able to perform, especially with shareholders who stood with us.”
Jet Airways’s 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 per cent drop in net profit, its worst-ever quarterly performance. SpiceJet
will be reporting earnings next week.
Jet Airways said last week that it’s implementing several measures to reduce costs and increase revenue, in areas including sales 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 per cent cut in pay.
“The stock will remain under severe pressure till there’s some concrete plan on the table to revive the loss-making airline,” said Devansh Lakhani, a director at Mumbai-based Lakhani Financial Services Ltd.