Jet Airways has announced a plan to try and turn its fortunes around and reassure its creditors.
Firstly, it expects to raise around ?3.5 billion by offloading a 49% stake in its frequent flyer programme, Jet Privilege, which is majority owned by Etihad Airways.The sale will allow it to infuse fresh capital into its operations. If it is unable to complete the sale in time, then it will apply for a bridge loan to meet its urgent financing needs. It is reported to be in talks with private equity giants Blackstone and TPG regarding the sale.
Secondly, it plans to cut ?2 billion worth of costs by 2020. In addition to cutting staff and salaries further, it will focus on reducing sales and distribution expenses and rationalising its fleet, which will save maintenance and storage costs. This will likely involve a sale-and-lease-back approach, wherein it will sell a portion of its fleet and lease them back in monthly instalments.
Thirdly, it will try to renegotiate the terms of its credit facility, which mandates that it earn a profit of at least $100 million in the current financial year. The contract was struck when oil prices were lower and the rupee was stronger. In fact, it will have to revise all its profitability targets, given the fact that fuel prices aren’t decreasing in the medium term and the government recently levied a 5% duty on imports of aviation turbine fuel.
Finally, the airline has pledged to earn a minimum revenue of $100 million every quarter. This won’t be possible unless it is able to pass on its high fuel costs to customers through higher air fare, which seems unlikely given the pricing pressures it faces from low-cost carriers like IndiGo and SpiceJet.
28/09/18 Dilsher Dhillon/Business Insider
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Firstly, it expects to raise around ?3.5 billion by offloading a 49% stake in its frequent flyer programme, Jet Privilege, which is majority owned by Etihad Airways.The sale will allow it to infuse fresh capital into its operations. If it is unable to complete the sale in time, then it will apply for a bridge loan to meet its urgent financing needs. It is reported to be in talks with private equity giants Blackstone and TPG regarding the sale.
Secondly, it plans to cut ?2 billion worth of costs by 2020. In addition to cutting staff and salaries further, it will focus on reducing sales and distribution expenses and rationalising its fleet, which will save maintenance and storage costs. This will likely involve a sale-and-lease-back approach, wherein it will sell a portion of its fleet and lease them back in monthly instalments.
Thirdly, it will try to renegotiate the terms of its credit facility, which mandates that it earn a profit of at least $100 million in the current financial year. The contract was struck when oil prices were lower and the rupee was stronger. In fact, it will have to revise all its profitability targets, given the fact that fuel prices aren’t decreasing in the medium term and the government recently levied a 5% duty on imports of aviation turbine fuel.
Finally, the airline has pledged to earn a minimum revenue of $100 million every quarter. This won’t be possible unless it is able to pass on its high fuel costs to customers through higher air fare, which seems unlikely given the pricing pressures it faces from low-cost carriers like IndiGo and SpiceJet.
28/09/18 Dilsher Dhillon/Business Insider
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