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Jet Airways reassures investors with cost-cutting, fund raising plan

Jet Airways would invest in its business, cut costs in excess of 20 billion rupees in two years

Reuters  |  New Delhi 

Jet's unit costs increased 8.7 per cent while its unit revenue declined 3.9 per cent

India’s Ltd (JET.NS) on Tuesday set out to reassure investors it was taking measures to cut costs and boost revenue, a day after the beleaguered airline reported its second consecutive quarterly loss.

Jet, part-owned by Etihad Airways, has been facing financial difficulties but has said it is confident it can slash costs and keep flying, dismissing reports it had told staff it was running out of cash.

India is the world’s fastest-growing aviation market, but rising fuel prices, a weaker rupee and price competition has pulled down airline profitability. Ltd (INGL.NS), operator of the country’s leading carrier IndiGo, reported a 97 percent plunge in profit last month.

“The Indian aviation sector, although witnessing steady and robust traffic growth, has been passing through a tough phase,” Jet’s CEO told analysts on a call.

“Airlines have been unable to pass through this increased cost to consumers by increasing fares,” Dube said, adding the industry could not sustain such low fares in the long run especially with fuel prices rising.

ALSO READ: Jet Airways posts Rs 13.26 bn Q1 loss due to high fuel prices, low fares

Shares in Jet tanked earlier this month after it deferred its earnings as the audit committee had not signed off on them “pending closure of certain matters”.

Dube said the company and its auditors were not in disagreement over the financial results, and that Jet’s account with its lenders was “standard” - indicating there had been no delay in meeting loan obligations.

ALSO READ: Corp Affairs ministry seeks details from Jet Airways on 'certain issues'

Jet, on Tuesday, also said it would invest in its business, cut costs in excess of 20 billion rupees ($285 million) in two years, and planned to raise funds by selling a stake in its frequent flyer program.

Some of the savings will come by reducing its maintenance and interest costs, sales and distribution expenses and rationalizing its fleet.

ALSO READ: High selling, distribution costs of debt-laden Jet Airways under scanner

The company expects to save about 3.7 billion rupees this year on maintenance costs and expects a reduction of 6.5 billion rupees starting Jan. 1, 2019, Jet’s chief financial officer Amit Agarwal told analysts.

The airline owns about 16 wide-body aircraft worth between $750-$800 million, on which it has debt of about $280 million, and it intends to do a sale and leaseback on a portion of this fleet, Agarwal said.

ALSO READ: Jet Airways, Bangkok Airways announce expansion of code share agreement

Jet raised $300 million during the quarter from banks and through lease incentives to meet its operational and interest expenses and pay down some debt, he said. The airline’s net debt as of June 30 was 73.64 billion rupees.

It also plans to add 11 to its fleet this fiscal year, which it says are 15-18 percent more fuel efficient. Jet has placed a firm order for a total of 225 such aircraft.

ALSO READ: Long-term business partners help keep debt-laden Jet Airways on flightpath

The airline posted a loss of 13.23 billion rupees for the quarter ended June, compared with a profit of 535 million rupees a year earlier, despite a 6.4 percent jump in its revenue.

The rise in Brent prices had a negative impact of more than 6 billion rupees in the quarter and foreign exchange losses amounted to 3.44 billion rupees, Agarwal said.

First Published: Tue, August 28 2018. 21:23 IST