Jet Air to sale-and-leaseback of 10 aircraft by March

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Jet Airways See previous management interviews See what other Experts & Brokerages are saying about Jet Airways Jet Airways BSE | NSE 30/05/12 Are Mutual Funds betting on Jet Airways?

Jet Airways ,the country's largest private carrier has posted its fourth straight quarterly loss on Friday as higher fuel costs continued to hurt its financials. The airline posted a Rs 101.22 crore loss for the December quarter against a Rs 118 crore profit which it posted in the year-ago period.

In an interview to CNBC-TV18, M Shivkumar, senior vice-president (finance) at Jet said expensive fuel impacted the operating performance of the airline, "We could not pass on the fuel cost to customers and hence had operating losses," he said.

Aviation Turbine Fuel (ATF), constitutes a third of the total operating cost to any airline and in India it costs is nearly 70% higher then what foreign airlines in South East Asia or West Asia pay due to huge sales tax that airlines have to pay in India.

During the quarter, the ATF cost around 53,0000/kl. Fuel cost surged 60% to Rs 175.3 crore.

Shivkumar, howeever said the carrier benefited from a sale and leaseback of planes, a property deal and foreign-exchange gains during the quarter. Jet earned around Rs 400 crore from these transactions.

Going forward, the company will do a sale-and-leaseback of around 8-10 aircraft by March to boost cash flows. A sale-and-leaseback of an aircraft is an arrangement in which a particular airline sells its aircraft to a buyer/lessor who immediately leases the property back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset.

He further said as of now the company has no plans to infuse fresh equity into the airline.

And on the likely foreign direct investment (FDI) to be allowed in the sector, he said it's too soon to comment.

Below is an edited transcript of his interview with Udayan Mukherjee. Also watch the accompanying video.

Q: Stripped off the extraordinary income on forex gains etc, your operating losses are very large. Can you take us through by when you expect some kind of a cutback in those losses?

A: Our turnover has been up by about Rs 471 crore, which is 14% over last year for the same period. The increase in cost has mainly been again on fuel, which is about Rs 656 crore over the same period in the last year. Together with all other costs, the operating losses have increased. But when you look at the factors that have gone into it, mainly we were not able to pass on the fuel costs fully.

Departures have been 21% higher compared to the similar period for the last year and yields are more or less at the same level as that of last year. In fact, they are marginally lower but much higher than the second quarter which is actually not such a comparable quarter because second quarter has been very bad from a yield perspective. Fuel prices have also substantially increased; most of the increase in fuel has been on the rates, which is 83% out of Rs 656 crore. So Rs 542 crore is on account of rates and on account of increase in volume of operations is about Rs 114 crore.

Let me take you through the exceptions that you talked about. We have closed out our Bandra Kurla Complex land where certain expenses which we charged got reversed consequent to the deal. That was for around Rs 102 crore. Apart from that, there was Rs 76 with respect to sale and leaseback of engines that we carried out, so totally that is Rs 178 crore.

As far as the forex is concerned, what we have reflected is Rs 179 crore on account of the accounting policy. We are carrying in the balance sheet Rs 278 crore of unrealized losses. But then that was at Rs 53.10 per dollar and today's rates are about Rs 50.32 per dollar. If you look at it, Rs 135 crore odd losses can actually be reversed in terms of a balance sheet item. At Rs 47 we will be neutral. In the books there are certain realized losses which have added to the cost and that is about Rs 112 crore. So all in all, all these things have contributed to a net loss of Rs 101 crore.

Q: So what's the new capital infusion plan, because your net worth is gradually getting eroded with these losses quarter after quarter? Do you plan to sale and leaseback of aircraft or you have any plans of infusing any fresh equity capital?

A: Equity at this juncture looks little difficult, too early for me to say about equity infusion. But sale and leaseback of aircrafts will certainly happen and we also expect going forward with traffic holding. We look forward to stable yields coupled with appreciating rupee and crude not flaring up.

On account of increase in betterment in operations, together with sale and leaseback of aircrafts, we will be able to fund our operational requirements. We also look forward to certain dispensation and the external commercial borrowings (ECBs) to be able to raise funds and that in any case we will be approaching the concerned ministry and the officials.

Q: There has been a lot of talk about allowing 49% FDI, but you are saying that at these kind of prices Jet Airways will not be looking at selling any kind of equity?

A: We welcome any development in this regard from government to make the airlines more viable, but from this perspective, we will be able to comment only after it becomes the rule. But we continue to maintain that yield is a very important factor which will bring anybody into this country.

We also said air travel should not be treated as a luxury from a tax perspective considering the way the tickets are priced with more and more low fair segments growing and hence there is a case for reduction in excise duty and sales tax on ATF.

Q: Can you give us some timeline and actual amounts on how much you can get during the course of the year on sale and leaseback?

A: Sale and leaseback by March we should be able to do some amount of aircrafts which are on system right now and which are on our radar, certain other aircrafts as well. So we should be able to breach at least 9-10 aircrafts before 31st March.