A downgrade by rating agency ICRA over the weekend saw the stock of Jet Airways lose nearly 5 per cent on Monday. ICRA downgraded Rs 3,210 crore of Jet’s long-term debt facilities to ‘D’ from ‘BB’, and Rs 4,250 crore of its short-term debt facilities to ‘D’ from ‘A4’. This, the rating agency said is due to delays in debt servicing by the company. According to ICRA’s rating scales, instruments with ‘D’ rating are in default or are expected to default soon. Essentially, a ‘D’ rating means that the instruments have been rated junk.

Jet Airways, in its defence, reportedly claimed that it is current on all its loan obligations and interest payments, and that the downgrade is based on a past debt servicing delay which occurred and was resolved last year. It also claimed that as on March 2014, there were no outstanding defaults in the repayment of dues. The airline is said to be meeting ICRA to explain its position.

But going by the stock price dip, the market didn’t seem convinced with the airline’s explanation.

Even though Jet Airways has moderated its debt from nearly Rs 10,600 crore as of March-end to Rs 9,800 crore as of June, the burden still remains sizeable - what with the company’s net worth having been sharply eroded and it continuing to post big losses. The airline posted a record loss of Rs 2,153 crore in the March quarter.

Improving operational performance and flying more passengers helped the airline reduce its June quarter loss to Rs 218 crore from Rs 355 crore a year ago, but this is still very high. Jet’s turnaround strategy includes doing away with the ‘Jet Konnect’ airline brand (associated with its low cost offering) and going back to its basics of being a full-service airline. The rating downgrade at this juncture, by pushing up the cost of future debt for the company, will push it to the back foot once again. It doesn’t help that competition in the Indian skies is expected to increase significantly with ‘Vistara’ – the Tata – SIA joint venture likely to take off this year and approvals granted for six new airlines in the country.

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