Amid cash crunch, Jet Airways to face safety audit by aviation regulator

Audit to focus if financial health is compromising safety standards

The Directorate General of Civil Aviation (DGCA), the aviation regulator, has decided to conduct an audit of Jet Airways, which is facing a severe liquidity crisis. Sources said the audit would focus on whether the financial stress was affecting the airline’s operations and maintenance.

Jet said it was aware of the proposed inspection. “The airline is prepared for it (audit). At Jet, safety is of paramount importance,” a source said. 

A senior DGCA official said the audit was necessitated according to the guidelines of the International Civil Aviation Organization (ICAO), which recommends the regulator to check security and safety standards of airlines. “We normally do periodic audit to ensure that they (airlines) are not compromising on passenger safety due to financial stress,” said the senior DGCA official.

Asked if the decision was taken in the light of the airline’s financial crisis, the official said the current situation had influenced the audit call. “Financial difficulties and their impact on operations and maintenance call for an audit to check if the airline is facing an issue on payments to vendors, oil companies, and aircraft lessors,” the official said. State Bank of India Chairman Rajnish Kumar had said last week that the bank had put Jet’s account under watch for a possible loan default.

“We have exposure to Jet. It is part of the watchlist SMA 1 and 2 in the June quarter,” Kumar said. 

According to an Icra report, net debt of the airline as on March 31, 2018, stands at Rs 81.49 billion, with a heavy repayment schedule. The rating agency feels that the airline’s current operating performance does not suggest enough cash flow accruals, hence, the scenario of a refinancing of payment is a good possibility.

Jet, however, has clarified that despite the financial difficulties, there have not been any default in payment to banks and vendors. The airline has implemented a pay cut of up to 25 per cent for the senior management as part of its cost control. However, the airline has rolled back pay cut decisions for pilots and engineers. 

A PTI report quoting a source said: “We (the DGCA) will conduct the audit from August 27. A similar audit of Air India has been completed.” The loss-making Air India, which has failed to attract any buyers, is awaiting Rs 9.80 billion additional funding from the government. Three banks and two lessors have served default notices on Air India in July. However, Business Standard could not immediately verify if Jet had been issued a similar notice.

Explaining the process of the audit carried out on Air India, a senior official of the airline said the company was asked to submit details of the last checks done on each aircraft and guarantees from vendors that they have confidence in the airline’s current management and financial health.