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Jet Airways gets $300 million liquidity support; chalks out turnaround plan

BusinessToday.In     August 29, 2018

Having announced its second consecutive quarterly loss earlier this week, Jet Airways is now in serious damage control mode, with a turnaround plan in place. During an analyst call yesterday, Amit Agarwal, the airline's deputy chief executive and chief financial officer, talked about receiving liquidity support of $300 million in the form of advance lease incentives and borrowings from domestic banks.

While he did not reveal the breakup, Agarwal said that a "large proportion of it came from lease incentives". Given that India's second-largest airline boasts a debt of over Rs 8,600 crore, and SBI claims to have put it on its overall watchlist for stressed accounts in the June quarter, banks are reportedly getting cagey with handing out more loans.

So a major thrust of Jet Airway's revival plan is cutting down expenses.  The airline has chalked out a cost reduction programme of more than Rs 2,000 crore over two years in addition to plans for better inventory management, improving pricing and monetising its well-established 8.5 million member JetPrivilege programme.

According to Agarwal, there are three big-ticket items under the comprehensive cost-reduction programme - sales and distribution cost, fuel optimisation, and maintenance cost, where the airline has already renegotiated contracts. Jet Airways reportedly expects to save about Rs 370 crore this year on maintenance costs, and expects a reduction of Rs 650 crore starting January 1, 2019.

The two-pronged approach of capital infusion and debt reduction is expected to result in significant reduction in the interest cost. "The two significant proposals considered by the Board of Directors today i.e. infusion of capital and the monetisation of the airline's stake in its Loyalty programme bode well for the long term financial health and sustainability of the airline," Naresh Goyal, Chairman Jet Airways, said in a statement on Monday, after announcing the Q2 results.

The airline reported a whopping Rs 1,323 crore of net losses for the June quarter due to higher fuel cost, falling rupee and low fares. It had reported a loss of Rs 1,036 crore in the previous quarter. Although Jet Airways was scheduled to announce the June quarter numbers on August 9, its decision to defer the results had raised many eyebrows. CEO Vinay Dube yesterday clarified that the results had been postponed to take a call on the cost-reduction programme.

During the investor call, the CFO further pointed out that the cash-crunched airline could look at the 16 planes it owns to mop up more funds. "Clearly there is a large equity sitting and Jet Airways can sell and lease back some of these planes," said Agarwal. Of these, 10 are Boeing 777s, three Airbus A330s and rest are Boeing 737s. He added that the market value of these planes is pegged at around $750-800 million.

All in all, Jet Airways plans to phase out Rs 2,200 crore debt in this fiscal year, and if things go to plan its total debt will come down to Rs 6,420 crore. The other good news for investors is that the airline's fleet expansion plans haven't changed. According to Dube, the company's plans to induct 11 fuel-efficient Boeing 737 Max planes in the fleet by March were on track. He added that three such planes have already been delivered and two more are expected to join the fleet soon. "Further, the induction of B737 Max will help us achieve the stated 8-10% growth plan," he said.

With agency inputs

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