Why such huge losses: Jet Airways clarifies

A day after it announced its worst-ever quarterly loss of Rs 998 crore (consolidated figure for Q2 FY14), the top management of India's second-largest airline, Jet Airways, said one-time aircraft maintenance costs and extraneous factors completely outside its control - such as rupee depreciation, increased airport and navigation charges and high aviation jet fuel prices - made their losses mount. 

"On the face of it a loss of Rs 891 crore  looks big," said Ravishankar G, CFO, Jet Airways in an earnings call with analysts on Thursday. (He did not quote the consolidated loss figure.) But he explained the various factors beyond the airline's control that added up to hurt it badly. He said that Rs 699 crore out of the total loss posted by the airline was due to the factors Jet could not do anything about.

"Jet incurred a loss of Rs 123 crore in the quarter because of the aircraft being on ground, Rs 213 crore as one-time maintenance costs as some of the engines went to the shop (Indian accounting methods do not allow it to be viewed as an investment), Rs 94 crore due to the fuel rates hike, Rs 38 crore due to increased navigation charges and Rs 231 crore due to the devaluation of the Indian rupee against the dollar," Ravishankar said.

The airline said it was hopeful of getting the last regulatory approval needed to consummate its $600 deal with Abu Dhabi-based carrier Etihad from the Competition Commission of India "soon and definitely by the end of this quarter".

The deal, Ravishankar said, will allow it to derive huge cost benefits rising out of cost synergies and commercial cooperation. It will also help Jet restructure its debt, which is currently at $1.9 billion. Out of this, $1.2 billion is debt against aircraft purchases and $700 million is loan raised form the Indian market. 

"We will raise $300 million in ECB's soon, half of which will be through Etihad's banking relationships," Jet said, and this debt restructuring will allow the airline to save $30 million in interest cost. Its cost of borrowing is currently 5.1 per cent.

The airline said it is hopeful that, as it enters the third quarter, demand will pick up as the market gets used to the hiked fares of about 25 per cent and the festive season opens up travel. 

"The impact of the increased fares in the last quarter will be showing in the balance part of this year and we are seeing encouraging trends of advance purchases," Ravishankar said. 

Due to the steep hike in air turbine fuel prices in the first quarter, which was about 15-16 per cent, airlines hiked fares by 25 per cent to 30 per cent in the fag end of the first quarter and were able to palm off some increased costs to the passengers.

Jet Airways said it is looking for buyers for its five grounded wide-body A330 aircraft type; selling them will get off $200 debt from its books and by leasing them it will earn the lease rentals and will just have to furnish the principal.

The Naresh Goyal-led airline said it will be getting one aircraft every month for the next 24 months but the capacity addition will be of only 12 aircraft.

 
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