Jet Airways nosedives to a Q1 loss of Rs45 crore

Heavy competition and rapidly rising operating costs have taken a heavy toll on Jet Airways, the country''s largest airline operator. The company has reported its first quarterly loss after its high profile IPO last year.

For the quarter ended 30 June, 2006, the airline has reported a net loss of Rs44.98 crore as against a net profit of Rs95.34 crore for the corresponding quarter of previous year. Net income from airline services increased 25.64 per cent to Rs1,646.54 crore from Rs1,310.52 crore for the previous year quarter.

Operating profits, excluding other income, for the quarter dropped 78.05 per cent to Rs61.25 crore from Rs279.09 crore for the prior year quarter. Operating margins as a percentage of net income declined substantially to 3.72 per cent from 21.3 per cent for the prior year quarter.

Major factors affecting operating margins were the considerable increase in fuel and aircraft leasing expenses. The airline had done a sale and lease-back of some of the aircrafts during the previous year to book some one-time profits and improve cash flows. But this has pushed up leasing expenses in the current year and, coupled with record fuel prices, have led to the sharp decline in operating margins.

Fuel expenses went up by 68.43 per cent over the previous year quarter while aircraft leases and other operating expenses were higher by 54.49 per cent. Sales commission increased 18.76 per cent while other selling expenses declined 33.49 per cent.

Increasing competition in the industry has forced all airlines to hike up salaries substantially and Jet was no exception. Staff costs more than doubled to Rs229.08 crore from Rs110.94 crore for the previous year quarter.

Interest costs were higher by 6.25 per cent while depreciation charges declined by 9.76 per cent. The airline wrote back Rs14.53 crore in tax provisions as compared to a provision of Rs59.79 crore.

Other income declined marginally by 7.52 per cent to Rs32.22 crore from Rs34.84 crore.

Profits from domestic operations declined substantially during the quarter while international operations reported a loss of Rs71 crore at the PBT level.

Jet Airways has not made any specific provisions for the failed acquisition of Air Sahara. The airline had advanced a total of Rs180 crore as a loan to Air Sahara after the signing of the share purchase agreement. Jet Airways had also opened an escrow account for the total purchase consideration of Rs2,000 crore in favour of Air Sahara.

Subsequently, an amount of Rs500 crore was paid to Air Sahara as part payment of the purchase consideration - against the pledge of 100 per cent shares of Air Sahara and a personal guarantee from the promoter of Air Sahara.

Following the failure of the deal, Air Sahara has obtained an injunction order against refunding of the balance Rs1,500 crore in the escrow account to Jet. Meanwhile Jet has filed a petition in the Bombay High Court to enforce the personal guarantee given by the promoter of Air Sahara.

Both airline companies have appointed arbitrators to settle the disputes under the Arbitration Act.