Sucheta Dalal :Jet Airways gets government nod to raise $400 million through QIP
Sucheta Dalal

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Jet Airways gets government nod to raise $400 million through QIP  

December 24, 2009

 Jet Airways, the Naresh Goyal promoted airline, has finally got clearance from the Indian government to raise $400 million through qualified institutional placements (QIPs).


The Cabinet Committee on Economic Affairs (CCEA) approved the Jet Airways' proposal, as recommended by the Foreign Investment Promotion Board (FIPB), to raise $400 million via equity investment through the qualified institutional placement (QIP) route from foreign institutional investors, an official statement said.


The airline had planned to raise funds from foreign institutional investors (FIIs) as the appetite for domestic investment in the aviation sector in India is not strong. Jet Airways has a consolidated gross debt of $3.10 billion, including $2.20 billion of aircraft debt. Its current payment obligations amount to about $330 million that include repayment of debt, payment to creditors and pending obligation to SICCI towards JetLite. After buying Sahara Airlines from the Sahara group, Jet Airways renamed it as JetLite.


Jet Airways, which holds the largest market share of 25.3% in the domestic aviation space, saw a 33% increase in passenger traffic during November, as compared with the industry average of 29%.


Earlier this month, speaking at the US-India Aviation Partnership Summit, Mr Goyal had said that consolidation among Indian airlines is inevitable and will be necessary to restore financial sanity to the market. He said the Indian aviation market suffers from high costs, a substantial volume of overcapacity and lack of adequate infrastructure at domestic airports.


For the quarter to end-September, Jet Airways reported a net loss of Rs4.10 billion from Rs3.80 billion as its revenues fell 27% to Rs23.80 billion from Rs32.60 billion, for the same period last year. The carrier has had to suffer a loss of Rs800 million due to a five-day pilot's strike in September that resulted in close to 1,300 domestic flights and around 200 international flights being cancelled.


"Domestic air traffic appears to have started reviving in the past few months based on recent traffic data. This, along with the peak season impact in the third quarter, will help airlines to improve yields, which otherwise had been severely impacted due to the recession and lean season impact in the second quarter," Jet Airways said in a release.


The company is planning to cut costs across its operations to improve its revenues. "We expect unit costs to be down by 10% year-on-year across all fields excluding fuel," the official added.


Jet Airways said that during the quarter, fuel prices increased by 17.4% as compared to the April to June quarter and this led to an additional cost impact of Rs1.10 billion.


IDFC-SSKI Securities Ltd in a report said, "With the macro-environment turning optimistic and the cost curve of the industry at its bare bones, we expect the cash losses of Jet to get limited, marking the beginning of a turnaround. However, with consolidated debt at $3.10 billion and payment obligations at around $330 million, capitalisation concerns continue to dominate. Jet's ability to raise funds through a QIP, sale and lease back of assets and sale of its land bank remain a critical monitorable going ahead."

During the quarter, Jet Airways reported revenues of about $35.50 million from its lease business. However, six out of its total nine aircraft currently on lease with various operators in the Gulf are expected to come off from September onwards. As per media reports, Jet was in discussions with Oman Air and Etihad to lease out two of its Boeing 777 wide-body airplanes.


Earlier, speaking with Moneylife, Saroj K Datta, executive director, Jet Airways, had said that the company was looking at expenses involved in each comparable item, specifically for Jet Konnect.


For example, the enhanced vision systems (EVS) costs are irrelevant and it would consider cost cutting in fuel consumption, engineering costs and such other fields.


Jet Konnect, which operates 130 flights daily, is the carrier's no-frills all-economy class service in key domestic routes and is designed to meet the needs of the low fare segment.


— Yogesh Sapkale

-- Sucheta Dalal