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Credit rating agency ICRA downgraded credit ratings on Jet Airways’ short-term and long-term loan facilities citing weakened financial performance as the airline is unable to pass on the rise in jet fuel prices to customers.
The ratings downgrade considers the weakened operating and financial performance of the company because of its inability to pass on the increase in jet fuel prices to the customers, ICRA said in a statement.
This is the second time in the last one year that ICRA has downgraded these short-term and long-term loan facilities of Jet Airways. The airline received its last downgrade in September, 2017.
After posting a net loss of ₹1,040 crore in the fourth quarter, Jet Airways’ networth has already turned negative, which among other factors led ICRA to the rating downgrade. Jet Airways has large debt repayments due over FY2019 (₹3,120.3 crore), FY2020 (₹2,444.5 crore) and FY2021 (₹2,167.9 crore), ICRA noted.
“The company is undertaking various liquidity initiatives, and the timely implementation of these initiatives is a key rating sensitivity.
Forex risk
“The airline industry also continues to face headwinds of rising fuel costs and weak pricing power due to excess competition,” ICRA said.
The overall credit profile of the company has deteriorated, characterised by an increase in debt levels and weakened liquidity.
The networth also continues to remain negative, ICRA added.
“With a considerable portion of the company’s expenses, including financial/ operating lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses, being denominated in the US dollar, the company is exposed to foreign exchange risk,” the report said.
During FY2017, Jet Airways’ PAT of ₹1,498.7 crore included profit on sale and lease back of aircraft amounting to ₹517.6 crore and share of profit of ₹226.2 crore on completion of the development of its plot of land situated at Bandra-Kurla complex (Mumbai) upon final settlement with Godrej Buildcon.
As against this, the company booked only ₹114.0 crore share of profit during FY2018. Jet Airways reported a foreign exchange loss of ₹46.2 crore in FY2018 against a foreign exchange gain of ₹61.4 crore in FY2017.
Weakened operating profit margin coupled with a decline in non-operating income resulted in the company reporting a net loss of ₹636.5 crore in FY2018.
Continued support from Etihad Airways is fundamental towards turning Jet Airways around and improving its liquidity profile, ICRA pointed out in its report.
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