Big blow to Jet Airways! Icra downgrades its credit rating to junk status; check why

Credit rating agency Icra on Monday downgraded the rating of premium airliner Jet Airways to junk status after the aviation major reported losses in the March quarter of financial year 2018-19.

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.

"ICRA has revised its short term rating to "ICRA A4+" from "ICRA A3"," informed Jet Airways in a filing to BSE. 

"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 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-," said ICRA in its statement on Monday. 

"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's 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.

WATCH ZEE BUSINESS VIDEO HERE

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".

Last week, 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.