Icra downgrades Jet Airways' Rs 70-bn debt third time in five months

Due to delay in implementing liquidity enhancement measures, rise in crude price, rupee depreciation, inability to pass on costs

Credit rating agency Icra has further downgraded the long-term rating of Jet Airways' Rs 70-billion debt. 

This is the third rating downgrade in five months as the airline faces a delay in implementing liquidity enhancement measures. A rise in crude oil price, rupee depreciation and inability to pass on costs have been cited as other reasons for the downgrade.

Icra has now assigned a B- (negative) rating for Jet Airways' Rs 70 billion long-term debt (from BB-) which includes non-convertible debentures, loans, fund, and non-fund based facilities. 

The rating of Rs 39.50-billion short-term non-fund facilities has been retained at A4.

“The domestic airline industry continues to face headwinds of rising fuel costs and weak pricing power due to excess competition. This is expected to result in a further weakening of the company’s performance in the near term,” Icra said.

“The company has large debt repayments due over FY2019 (Rs. 31.20. billion), FY2020 (Rs. 24.44 billion) and FY2021 (Rs. 21.67 billion). The company is undertaking various liquidity initiatives, which includes, among others, a stake sale in Jet Privilege Private Limited (loyalty programme), and the timely implementation of these initiatives is a key rating sensitivity,” it said.

The airline announced Rs 20-billion cost-saving measures and stake sale in its loyalty programme following its second quarter result. But increased crude price and weak rupee continue to impact the airline negatively and it has been forced to delay salaries to its pilots, engineers and senior management.

Meanwhile, Crisil Research expects average crude oil prices to be $72-77 per barrel this fiscal, pushing ATF prices up similarly. Similarly, due to a weakened rupee, it estimates a 20-22 per cent increase in operating costs for airlines this financial year. CRISIL expects a three per cent rise in fares in the third quarter of FY2019, but this would not be sufficient to offset the 20 per cent rise in cost.