Tuesday, November 22, 2011

Jet Airways to raise funds to stay aloft

MUMBAI (Reuters) - Debt-ridden Jet Airways said on Tuesday it would sell and lease back aircraft and offload land to raise funds for what its auditors called a cash crunch threatening its future.

The country's biggest carrier, which has a near-quarter local market share but swung to a big net loss in September on rising fuel costs and foreign exchange losses, said operational cash flow would improve significantly in the approaching peak season.

Its shares, which have plummeted by two thirds in 2011, posted a 5 percent rise at the close variously ascribed by analysts to a fall in oil prices, short covering and a technical bounceback after a recent battering for airline stocks.

Its peers Kingfisher and Spicejet also rose 5-7 percent during the day.

India's airlines are on course to post record losses of more than $2.5 billion for the year ending March 2012, and investors have become wary of an industry that, just a few years back, ordered hundreds of aircraft in an ambitious bet on the future.

While analysts continue to expect domestic air traffic to grow 15-20 percent in the next five years, critics query the viability of a fiercely competitive sector where fuel costs have skyrocketed and a price war has eroded margins.

Jet's auditors Deloitte Haskins & Sells and Chaturvedi & Shah said in a report released on Monday night but dated Nov. 11 that raising money was crucial if Jet's accounts are to be prepared on a "going concern basis" in the future.

Earlier this month, Jet had said it was looking at several "non-payroll areas" to cut costs, including paring interest charges by converting rupee loans into dollar debt.

It has also signed a deal with Indian builder Godrej Properties to develop part of its land bank in Mumbai into an office complex.

Auditors to billionaire Vijay Mallya-onwed Kingfisher Airlines had, in September, raised similar concerns.

"Jet is not in as bad a position as Kingfisher," said Rajan Mehra, executive director at the Asia Pacific Academy for Aviation and Hospitality.

"Jet has a more efficient business model, they have proved it over a long period of time, they have made profits, they have a team of high-ranking officials in place, their model is good," Mehra added.

Kingfisher has pushed back deliveries of Airbus's A380 superjumbo airliner and is also set to cancel orders for two A340 aicraft.

National carrier Air India suffered a setback in its plans to acquire Boeing planes after a U.S. airline body sought to block $3.4 billion in pending taxpayer-backed loan guarantees to buy the jets.

Kingfisher said on Tuesday its aircraft manufacturers have provided financial support to it and had agreed to a cut in prices.

Banks, concerned about the headwinds in Indian aviation sector, will be cautious about lending to airlines but may consider Jet's proposal for loans.

"It's not like we want to close our door on aviation. It's a fast-growing sector," said an executive at a state-run bank who asked not to be identified.

"If Jet wants bank loans, we will do business if it is viable for us. I will decide the viability based on cash flows, profitability, projections. If it makes sense, why not?" ($1 = 52.16 rupees)

http://in.reuters.com

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