ICRA downgrades Jet Airways’ long-term rating to ‘junk status’

Mumbai: Ratings agency ICRA downgraded the Airline major Jet Airways’ credit rankings to junk status on the back of a net loss reported for 2017-18.

The airline’s long term rating assigned to “Long term Loans” and “Non-Convertible Debentures” was revised to lCRA BB+ (negative outlook) from ICRA BBB- (negative outlook).

BB+ Rating is just below the investment grade rating of BBB-. It is considered as highest junk rating.

According to a BSE filing made on Monday, the company said that ICRA has revised its short term rating to “ICRA A4+” from “ICRA A3”.

“The downward revision considers weakened financial performance of the company, primarily arising out of increased jet fuel prices which could not be passed on to the customers due to weak pricing power caused by excess competition,” the filing said.

ICRA in its statement on Monday said: “ICRA has downgraded the long-term rating assigned to the Rs 698.9-crore non-convertible debenture programme, the Rs 3,574.7-crore long-term loans, the Rs 645.0-crore long-term, fund-based facilities and the Rs 600.0-crore long-term,
non-fund based facilities of Jet Airways (India) Limited to [ICRA]BB+ from [ICRA]BBB-.”

“ICRA has also downgraded the short-term rating assigned to the Rs 3,950-crore short-term, non-fund based facilities of Jet Airways to [ICRA]A4+ from [ICRA]A3. The outlook on the long-term rating is negative,” the statement added.

The downward revision comes after the company’ auditors on May 23 red-flagged its future plans on cost reduction and fund mobilisation to avert “uncertainties” created by a sudden announcement of a net loss.

ICRA said 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.

“The company has large debt repayments due over FY2019 (Rs 3,120.3 crore), FY2020 (Rs 2,444.5 crore) and FY2021 (Rs 2,167.9 crore). The company is undertaking various liquidity initiatives, and the timely implementation of these initiatives is a key rating sensitivity. The airline industry also continues to face headwinds of rising fuel costs and weak pricing power due to excess competition,” it added.

ICRA believes that the credit profile of Jet Airways will continue to remain stretched in the medium term until the domestic airlines industry is able to pass on the increase in jet fuel prices to the customers through an increase in fares.

“The outlook may be revised to stable if the company is able to significantly improve its profit margins through a proportionate increase in yields or a significant reduction in its CASK. Any major liquidity initiative undertaken by the company is also a positive for the ratings,” ICRA added.

The Jet Airways auditors expressed their doubt over the appropriateness of preparing the company’s financial results “on a going concern basis”.

For the uninitiated a “going concern basis” is an accounting term which basically refers to a firm’s ability to generate enough financial resources to stay in business or avoid bankruptcy.

“The appropriateness of assumption of going concern is dependent upon realisation of the various initiatives undertaken by the company and or the company’s ability to raise requisite finance or generate cash flows in future to meet its obligations, including financial support to its subsidiary companies,” Jet Airways’ auditors had said.

“Our opinion is not modified in respect of this matter.”

On last Wednesday, the company reported a standalaone net loss of Rs 1,036 crore for the fourth quarter of 2017-18 from a net profit of Rs 602.42 crore reported for the corresponding period of 2016-17.

In terms of financial year, Jet Airways reported a standalone net loss of Rs 767.62 crore from a net profit of Rs 1,482.52 crore reported for the previous fiscal.

On a consolidated basis, the aviation major reported a net loss of Rs 636.45 crore in 2017-18 from a net profit of Rs 1,498.68 crore in 2016-17.

Jet Airways shares were trading at Rs 436.50 per share at the BSE, up 7.80 per cent at 3.16 pm on Monday.