Jet Airways Forecasts Profit in Mid-2016 After Record Loss

May 28, 2014 7:05 am ET

(Updates with company comments from fifth paragraph, closes share price in ninth.)

May 28 (Bloomberg) -- Jet Airways India Ltd., the South Asian carrier in which Etihad Airways PJSC owns a 24 percent stake, posted a record quarterly loss and forecast it won’t be profitable until the second half of 2016. The shares slumped.

India’s biggest publicly traded carrier will implement “tough measures” to return to profitability and established a “major” cost-cutting program, including writing down overvalued non-cash assets and reconfiguring planes, it said.

“There can be no short-term solutions,” Chairman Naresh Goyal said in a statement yesterday. “The changes required will take time to implement.”

Jet Airways, which has had an annual profit only once in the last seven years, will face intensified competition shortly as local ventures of AirAsia Bhd. and Singapore Airlines Ltd. aim to start flights this year. The nation’s second-largest carrier by market share yesterday appointed Cramer Ball, an ex- chief executive officer of Air Seychelles, as its new CEO.

The company expects to return to profitability by the middle of the financial year ending March 31, 2017, as it implements a turnaround plan that includes increasing ancillary revenue, selling unutilized planes and focusing on narrow-body aircraft, Vice President of Finance Ravichandran Narayan said on a conference call with analysts today.

“It is a fact that we are a very highly leveraged company,” Narayan said,"We continue to have a negative net worth situation.’’ Jet had consolidated debt of $1.77 billion billion at the end of March, while its cash and cash equivalents were just above $200 million, Narayan said.

Loss

The company’s net loss widened to 21.5 billion rupees ($360 million) in the quarter ended March 31 from 4.96 billion rupees in the year-earlier period, it said yesterday in a statement. That compared with the 1.57 billion-rupee median loss of four analysts’ estimates compiled by Bloomberg. Costs for the period rose 29 percent to 59.3 billion rupees.

“The turnaround will take time and another round of equity infusion by Etihad, to 49 percent, is likely in the near term,” Kapil Kaul, the South Asia chief executive of the CAPA Centre for Aviation in New Delhi, said in an e-mailed comment. “Etihad needs to take the Jet turnaround more seriously than what is visible at present.”

Plane Reconfiguration

Shares of Mumbai-based Jet Airways fell 8.7 percent to 245.30 rupees in Mumbai today, the biggest drop since June 10, 2013. They have declined 56 percent in the past year, compared with the 22 percent gain in the S&P BSE Sensex index. Trading volume today was more than double the three-month average.

Jet Airways isn’t alone among Indian carriers to seek an overseas partner. SpiceJet Ltd., a budget carrier, is in “very advanced” talks with an external investor about a capital infusion, it said May 20, as it seeks to return to profit amid heightened competition.

Jet’s Narayan said there is no indication the company will get an equity infusion now, and all funding will be in the form of debt.

Etihad CEO James Hogan and Chief Financial Officer James Rigney attended Jet Airways’ board meeting yesterday for the first time, the airline said.

The company announced its latest steps after advisers Seabury APG completed a long-term network and fleet plan.

Jet Airways will reconfigure its Boeing Co. 737 fleet and seek to optimize the seat count in its wide-body fleet, it said.

In the latest quarter, Jet Airways took a charge of 7 billion rupees on its low-cost subsidiary Jet Lite. The unit has a negative net worth, Jet Airways said.

Fuel costs, the biggest expense for an airline, rose 16 percent to 19.1 billion rupees at the parent company.

Ball succeeds Ravishankar Gopalakrishnan, who resigned as acting CEO in March after Gary Kenneth Toomey resigned in January. Nikos Kardassis, who served two terms as the carrier’s chief executive, resigned in June.