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29 November 2018
 |
| RBI
(The Total Investment & Insurance Solutions) |
Indian airlines will need equity infusion of
about ₹35,000 crore over the next 3-4 years to
reduce their debt burden, rating agency ICRA Ltd said on Thursday.
“In the near term, the balance sheets of Indian carriers are expected to
continue to remain stressed until the carriers are able to reduce their debt
burden through a combination of improvement in operating performance and/or by
way of equity infusion,” said Kinjal Shah, vice-president and co-head
(corporate sector ratings) at ICRA, said in a report released Thursday.
“The overall debt levels in the industry remain high and would require
equity infusion to bring the same to reasonable levels. ICRA believes an equity
infusion of about 350 billion (35,000 crore) would be needed over the next 3-4
years,” Shah added. The Total
Investment & Insurance Solutions
Higher fuel prices and a weakening rupee have increased operating costs
at airlines. A weak rupee adds to their woes as most of their expenses are
dollar-denominated. The Total
Investment & Insurance Solutions
Besides, intense competition in the domestic sector has prevented
airlines from fully passing on the costs to the passengers.
In October, most airlines saw a significant drop in passenger load
factor as they tried to pass on increasing costs to passengers by increasing
fares. At the same time, large aircraft orders have led to over-capacity,
reducing their ability to raise fares. The
Total Investment & Insurance Solutions
“While the average ATF (air turbine fuel or aviation fuel) prices have
witnessed a Y-o-Y increase of about 35% during April-November 2018, the average
INR depreciated by 7.8% against the US$ during this period. This has resulted
in an increase in the CASK of the airlines, not buttressed by an increase in
yields. In fact, yields have declined for most airlines despite the surging
costs,” the ICRA report said. The Total
Investment & Insurance Solutions
“This is due to the price sensitive nature of the industry which is
plagued by rising capacities, with India’s aviation sector likely to have
significant over-capacity in the next two-three years,” it added.
In the September quarter, all three listed Indian airlines reported
losses.
Naresh Goyal-led Jet Airways (India) Ltd posted a net loss of ₹1,297.46 crore, excluding its units, its
third successive loss. It had a net profit of ₹49.63 crore in the same period a year earlier. The Total Investment & Insurance Solutions
SpiceJet Ltd’s
standalone net loss, excluding results of SpiceJet Merchandise and SpiceJet
Technic, stood at ₹389.37
crore at the end of the September quarter. It had a profit of ₹105.27 crore a year earlier.
The country’s largest domestic airline, IndiGo (InterGlobe Aviation Ltd),
reported a loss of ₹652.13
crore in Q2, its maiden quarterly loss since going public in November 2015. The Total Investment & Insurance
Solutions
CRISIL Ratings had earlier in November said that Indian airlines may
post their steepest loss in a decade this financial year, slammed by rising
operating costs from high jet fuel prices and a weak rupee.
“At an estimated ₹9,300
crore, the industry’s losses at EBIT (earnings before interest and tax) level
would surpass the ₹7,348
crore blow it was dealt in fiscal 2014,” CRISIL had said in a report.
Airlines in the country posted “aggregate profit of ₹4,000 crore on an average at the EBIT level”
from FY14 to FY18, when global crude oil prices stayed low, according to the
CRISIL report.
In October, IndiGo, SpiceJet and Jet
Airways have seen downgrading of
credit rating for some of their loan facilities, as they face
rising expenses and limited room to hike fares amid intense competition.
However, oil prices have steadily declined recently, while rupee has
strengthened against the dollar. In the past year, the benchmark Brent crude
has lost 2.74% to $58.17 a barrel, while the rupee has weakened 7.92% to ₹69.85 to a dollar during the same period. The Total Investment & Insurance
Solutions
SpiceJet’s chief financial officer Kiran
Koteshwar had earlier this month told Mint that as long as jet
fuel stays at $60-65 a barrel, and rupee at ₹68-70 against the dollar, airlines like SpiceJet can sustain operations
comfortably and even report profits. The
Total Investment & Insurance Solutions
“We don’t expect steep increases in macro parameters (oil and rupee),”
Koteshwar had said as he forecasted crude oil to stay at $65-70 a barrel in the
coming quarters.The Total Investment
& Insurance Solutions
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