Icra,an independent and professional investment Information and Credit Rating Agency revealed on Wednesday about downgrade ratings for Jet Airways.The airlines long-term ratings to ‘D’ after the cash-strapped carrier defaulted on a loan repayment. This is the third such action by the agency since October.
In a late night stock exchange filing on Tuesday, Jet Airways said interest and principal instalment has been delayed “due to temporary cash-flow mismatch”.
The ratings downgrade considers the delays by the company in the payment of the interest and principal installment due on December 31, 2018 due to cash flow mismatches. There have been delays in the carrying out of the proposed liquidity initiatives by the management, which have aggravated its liquidity.
ICRA considers Credit strengths,credit challenges,liquidity position and analytical approach as its key indicators to evaluate a rating.
According to the ratings agency, the carrier has already been delaying its employee salary payments and lease rental payments to the aircraft lessors. Furthermore, it has large debt repayments due for the period from December 2018 to March 2019 (Rs. 1,700 crore), FY2020 (Rs. 2,444.5 crore) and FY2021 (Rs. 2,167.9 crore). The company is undertaking various liquidity initiatives, which includes, among others, equity infusion and a stake sale in Jet Privilege Private Limited (JPPL), and the timely implementation of these initiatives remain critical to its credit profile.
Jet Airways was incorporated in 1992 and commenced operations as an Air Taxi Operator in May 1993, with a fleet of four leased Boeing 737 aircraft. The carrier got the airline status in January 1995. Jet Airways was founded by Mr. Naresh Goyal and is presently 51% owned by him, with a 24% stake held by Etihad Airways post infusion of Rs. 2,057.6 crore in November 2013. As on September 30, 2018, Jet Airways (consolidated) had a fleet of 124 aircraft.
The Jet Airways crisis emerged after the airline deferred announcement of its Q1FY19 results. It reported a net loss of `1,297 crore during the quarter following which the company CEO Vinay Dube announced several turnaround measures like network rejig, monetisation of customer loyalty programme besides bringing in additional equity.
Since then the airline has initiated talks with Tata group to buy stake, and reportedly held discussions with partner Etihad Airways to bring in fresh capital to tide over the financial crisis.
During Q2FY19, its revenue increased by 6.9% y-o-y to Rs 6,363 crore, while the yields went down 6% y-o-y to Rs 4.2 per km. The earnings before interest, taxes, depreciation, amortisation and rentals (Ebitdar) plunged 84% y-o-y to Rs 144 crore.
Icra said weak market conditions in the Middle-East and competitive airfares in the domestic market are other major challenges for the airline.
In October, Jet’s long-term borrowing programme was downgraded from BB(-ve) to B(-ve) over delays in the implementation of the proposed liquidity initiatives by the management. There was another downgrade to rating ‘C’ in December on the same grounds.
“The company’s liquidity position is stressed, with operating losses, high debt levels and negative networth,” Icra said in a release.
Recently, it also discussed raising short-term loans worth Rs 1,500 crore with its largest lender State Bank of India.
The ministry of corporate affairs also launched a probe into the alleged siphoning off of funds at Jet in August last year.
Nikos Kardassis, the former CEO of Jet Airways, who made a comeback to the carrier in an advisory role and was tasked to turn around the cash-strapped airline, also resigned last month.
Jet Airways recorded its lowest domestic market share in five years at 12.8% during November. Its passenger load factor was also down 6% y-o-y to 82.1%, according to the DGCA data.
Jet Airways shares on Wednesday fell over 6% to close at Rs 263.75 on the BSE.
Source:FE Bureau/ICRA
