Jet Airways needs to raise money: Auditors

MUMBAI: Auditors to Jet Airways, the country's largest carrier, have warned that the company needs to raise money in order to meet its obligations and fund JetLite, its loss-making subsidiary whose net worth has already been eroded.

Deloitte Haskins & Sells and Chaturvedi & Shah have also said raising money is critical if the company's accounts have to be prepared on a "going concern basis" in the future.

"The appropriateness of assumption of going concern is dependent upon the company's ability to raise requisite finance or generate cash flows in future to meet its obligations, including financial support to its subsidiary," the auditors have said in a note to the company.

The note was written on November 11, the day Jet announced its September quarter earnings, and is signed by RD Kamat, partner at Deloitte, and Parag D Mehta, partner at Chaturvedi & Shah. The letter was released to the stock exchange on Monday by Jet.

Going concern is an accounting concept under which accounts are prepared on the assumption that the company is likely to continue operations for an indefinite period. Any doubts or qualification from the auditor about the company's going concern status is, therefore, likely to spook investors and cause concern over its viability.

Jet said it is confident of getting equity soon. It plans to raise $300 million in sale and leaseback of 40 aircraft owned by the company. "We are in talks with leasing companies and are close to finalizing sale and leaseback for the aircraft that are owned by Jet," said M Shivkumar, senior VP, finance, Jet Airways.

Industry to See Worst Losses

"We are confident that we will be able to generate good revenues as October-January is a good season for airlines where we will be able to hold yields," the Jet executive said, adding, "Jet is also undertaking rigorous cost-cutting measures that will bring costs down going forward."

The domestic airline industry is facing turmoil after Kingfisher, the second-biggest carrier, canceled most of its recent flights due to a severe cash crunch and a dispute with lessors, which own most of its aircraft.

Rocked by surging fuel costs and severe competition, the airline industry is battling to stay afloat and has pleaded with the government to lessen its burden by cutting taxes and allowing foreign airlines to invest. Analysts say it is the sector's problem now. "The industry is going through a very tough time.

It is a tricky situation whereby the market is not shrinking but there is pressure on yields and margins. Airlines cannot do low-cost and full-service business models at the same time and they need to decide their focus to avoid this confusion. The government also needs to look into the high costs of fuel and other related charges like airport fee," said Vishwas Udirkar, partner/senior director, Deloitte Consulting.

The sector is expected to see unprecedented losses of $2.5-3 billion said this year, a Centre for Asia Pacific Aviation report has said. Two months ago, Kingfisher's auditors-BK Ramadhyani & Co-made a similar point about the airline's finances and its ability to stay in operations.

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