Jet Airways readies plan to sell JetPrivilege stake, wet-lease small planes

Publish Date: August 29, 2018

Two consecutive quarterly losses have forced India’s oldest private airline, the Naresh Goyal-led Jet Airways, to consider a slew of fundraising measures that include diluting its stake in the joint venture with Etihad Airways, wet leasing some of its ATRs and finalising liquidity support.

On Tuesday, the 121-aircraft airline announced losses of Rs 1,323 crore ($189.2 million) for the April-May quarter, and attributed it to rising fuel costs and a weakening rupee. The first quarter had seen Jet, which last month said it faced cash-flow problems, posting a net loss of Rs 1,036 crore.

“The rise in the price of Brent fuel, a depreciating rupee and a resulting mismatch between high fuel prices and low fares have adversely impacted the Indian aviation industry, including Jet Airways,” Jet CEO Vinay Dube said in a press statement.

According to him, fuel costs spiraled 53% to Rs 2,332 crore during the quarter under review even revenues crawled from Rs 5,953 crore to Rs 6,066 crore. “We are implementing a host of measures to reduce costs and grow revenue,” Dubey said.

Elaborating on the measures in the same press statement, Jet Airways chairman Goyal said the board of directors had ratified “two significant proposals”: infusion of capital and the monetisation of the airline’s stake in Jet Privilege Pvt Ltd, an independent, loyalty and rewards management company formed in alliance with Etihad Airways in 2014.

Jet has 49.9% stake in JetPrivilege with Etihad owning the rest, as well as holding a 24% stake in Jet Airways itself. According to media reports, private equity firm TPG Capital has shown interest in a stake in JetPrivilege, while on its part, Jet has appointed Morgan Stanley as advisor to the deal.

The company said its turnaround strategy includes a cost-reduction programme aimed at saving over Rs 2,000 crore over the next two years through operational cost cuts in maintenance and fuel optimisation, enhancing manpower productivity.

Alongside, the airline is confident of successfully slashing non-fuel costs by 12-15% over the next 18-24 months, its chief financial officer Amit Agarwal told analysts in a conference call.

Jet has also planned a restructuring of its balance sheet through capital infusion and debt reduction to result in significant reduction in the interest cost. According to Agarwal, Jet would receive liquidity support of $300 million in the form of advance lease incentives and borrowings from domestic banks. (Lease incentives refer to deferring of lease payments by airlines to leasing companies, typically after it concludes a sale and lease back of aircraft).

The airline has also planned what it calls a “fleet simplification”: wet lease of excess ATR aircraft and B737s to further improve its bottom line. As part of this process, it has initiated talks with TruJet to wet lease up to seven of its 18 ATRs.

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