High debt set to hit airlines’ fund-raising

Mumbai: Airlines in India, which have accumulated huge debt in their books to fuel their expansion plans, will find it increasingly difficult to raise further funds through the debt route, say industry experts. Rather, they will look at raising money through equity.
According to data available on the BSE, the long-term debt to equity ratio for private carrier Jet Airways is 12.61 as on March 2009 and Kingfisher’s ratio is 4.95 as on March 2008. Low fare carrier SpiceJet too has a debt equity ratio of 19.30 as on March 2008. Debt equity ratio indicates how much a company has borrowed long-term as a percentage of its stock equity. The lower, the better.
An investment banker with a foreign bank said, “Airlines are finding it difficult to get more debt since their profitability ratios (operating profit) are negative. Being a capital-intensive sector, return on assets is also not favourable due to declining yields. Hence, getting funds is an issue for airline operators.”
M Shivkumar, senior vice-president (finance) at Jet, said, “We do not have any financial crunch currently. Our fund-raising plans via the qualified institutional placement route are on track. Market conditions are not favourable and hence we have not opted for further debt. We have our own sources of funding for new aircraft purchases.” However, previously, the airline deferred its plans to raise $400 million via rights issue due to volatile market conditions.
10/12/09 Shaheen Mansuri/Indian Express

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Categories: Indian Aviation- In General Dec 2009