DGCA to conduct financial audit of loss-hit Jet Airways

Amid concerns over the financial health of the carrier, market regulator Sebi is already looking into the Jet Airways board’s decision to defer announcement of the June quarter results following reservations expressed by the airline's audit committee.

The Naresh Goyal-promoted Jet Airways is also reported to be looking to raise money as it struggles to cope with a jump in fuel prices that has left India’s aviation sector facing big losses. 

DGCA assesses the financial health of airlines mainly ensure that they are not compromising on safety due to financial stress.

DGCA has been evaluating the financial health of airlines in the past as well and has recently evaluated the financial health of national carrier Air India, besides conducting a special audit of Air Deccan.

The regulator decided to go for a financial audit of Air India after it defaulted on salary payments to its employees and grounded several aircraft due to payment issues with vendors.

The loss-making Air India, which failed to attract any buyer earlier this year, is also facing a cash crunch and is awaiting Rs980 crore cash infusion by the government.  

It delayed the payment of salaries to its employees for the fifth consecutive month in July.

The DGCA will soon be conducting a similar exercise on Air Odisha, following orders from the aviation ministry, according to reports.

Jet’s problems reflect the deep problems that India’s fast-growing aviation market is face with. Airlines in India had a relative profitable run during the past few years when oil prices were low. With high oil prices, fuel used to account for 40 per cent of the operating coat of Indian carriers.

High oil prices have brought back the sense of uncertainty surrounding the industry in India, at a time when millions of Indians began to travel by air for the first time.

The country remains the world’s fastest-growing domestic aviation market, and orders from Indian airlines are forecast to account for 5 per cent of global demand for new aircraft until 2036.

But the financial troubles at some of the country’s biggest carriers threaten to derail the boom and could have knock-on effects for the world’s largest aircraft makers, such as Boeing and Airbus.

The problems started earlier this year when oil prices began to rise and the rupee declined against the dollar. Fuel costs in March, when the country’s listed airlines all reported their last results, were about 30 per cent higher than the previous year.

Meanwhile, the prices paid by customers have remained largely stagnant, with airlines apparently fearful that higher fares will mean flying with empty seats.

From 2016-17, the revenue that Indigo makes per passenger kilometre has fallen from Rs4.3 to Rs4.1, while Jet’s has dropped from Rs6.4 to Rs5.6. Those at SpiceJet, the smallest of India’s three listed airlines, has remained stagnant at Rs4.2.

Jet has around 15 per cent share of the domestic market. In the three months ended March 2018, the company, which is one of the few Indian airlines to fly both domestic and international routes, lost Rs1,040 crore before tax compared with a profit of Rs600 crore a year earlier. 

By the end of March the company had Rs80,800 crore in net debt — more than the value of its equity and about nine times what it made over the financial year in earnings before interest, depreciation, amortisation and rent, according to an analysis by Kotak.