Jet Airways seeks to reassure investors with cost-cutting plan

reuters

Business, Companies

The airline’s net debt as of June 30 was 73.64 billion rupees.

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 January 1, 2019. (Photo: PTI/File)

New Delhi: India’s Jet Airways Ltd 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. InterGlobe Aviation Ltd, 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 Vinay Dube 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.

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.

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.

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 January 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.

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 Boeing 737 MAX aircraft to its fleet this fiscal year, which it says are 15-18 per cent more fuel efficient. Jet has placed a firm order for a total of 225 such aircraft.

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 per cent 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.

Read more...