Turbulence at Jet Airways: unpromising finances & unpaid pilots
After disappointing financial results, trouble seems to be brewing for Jet Airways. The airline also appears to be struggling to keep up with its employees’ salaries, reportedly resulting in massive pilot leave.
In the most recent financial report on the company’s first quarter of fiscal year 2019 results, released in August 2018, Jet Airways reported approximately $198 million (INR 13.26 billion) net loss after tax . In comparison, the carrier had made approx. $8 million (INR 580 million) profit in the 1Q FY 2018.
Jetting into losses
The airline blames the losses on increased fuel prices and the weakening Rupee. “The Indian Aviation Sector, although witnessing a steady and robust traffic growth, has been passing through a tough phase,” explains Vinay Dube, Chief Executive Officer of Jet Airways.
“Brent rates have gone up by more than 150% from their lowest levels two and half years ago. In the last year the rupee has also depreciated by about 5%. Airlines have been unable to pass through this increased cost to consumers by increasing fares,” Dube explains.“The lag between the increase in fuel costs and fares must get corrected over time. The industry cannot sustain such low fares in the long run”.
The airline is currently looking at “various debt reduction and funding options”, among them - capital infusion and monetization of assets, which includes the possible sale of Jet Airways stake in its Loyalty program. The company also claims that it is continuing its cost cutting measures and what it calls “fleet simplification strategy”.“We are in the process of leasing out some of our excess ATRs to a regional carrier in India. We expect to lease out 3 aircraft starting with the upcoming winter schedule,” Dube assures.
Jet Airways also has high hopes for its main investor Etihad, which holds a 24% stake of the Indian airline. According to Jet Airways CEO, the Gulf carrier “is committed to our strong and ever growing relationship and stands firmly with us as we explore and leverage the opportunities presented by the growing Indian aviation market”.
Future outlook - negative
But investors do not seem to be as optimistic as Jet Airways management team. On September 3, 2018, Indian investment information and credit rating company ICRA downgraded Jet Airways, posting a negative outlook on the long-term rating.
“The ratings downgrade considers the continued deterioration in the operating and financial performance of the company because of its inability to pass on the increase in jet fuel prices to the customers,” explains ICRA in a statement.
“The airline industry continues to face headwinds of rising fuel costs and weak pricing power due to excess competition. This is expected to result in a further weakening of the company’s performance in the near term”.
ICRA states that it has took Jet Airways liquidity initiatives and effort to cut costs into account. However, that factors such as rising fuel price and foreign exchange risk (a “considerable portion” of Jet Airways expenses, including part of maintenance, financial and operating lease payments, fuel expenses, etc., is denominated in the U.S. dollar).
Also among the factors is the increased competition by both new and existing players that are increasing capacity and continue to pose a threat to the carrier that has large debt repayments due in the upcoming years. In particular, Jet Airways is due to repay Rs. 3,120.3 crore in FY2019, Rs. 2,444.5 crore in FY2020 and Rs. 2,167.9 crore in FY2021.
Therefore, the partnership with Etihad remains essential for the survival of the airline, as “one of the key factors towards turning Jet Airways around and improving its liquidity profile,” according to ICRA. The alliance has proven to have a positive impact on Jet Airways in terms of “network growth, code sharing, operational synergies and cost improvement through maintenance contract renegotiations, co-ordination of flights, leasing of spare aircraft, procurement of fuel and other services, resulting in cost savings”.
Hundreds of pilots leaving?
Trouble with investors is not the only major problem the Indian carrier is dealing with now. Times of India reports that the company has agreed to pay its pilots, engineers and senior employees their August salaries in two instalments over the next three months.
The information comes after the National Aviators’ Guild (NAG), Indian pilots union, issued a warning earlier in September 2018, stating that “not paying the salaries on time would lead to non-cooperation by pilots.”
Whether this agreement is going to be sufficient to stop staff from leaving remains a question. Financial Express reports that around a hundred pilots might have left the airline since Augusts 2018, because of “uncertainty regarding the future of the airline and lack of clarity on the turnaround plan”.
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