Auditors ask Jet Airways to raise funds

Aviation major, Jet Airways, has been asked by its auditors to raise fresh capital in order to meet its obligations and fund its loss-making entity, JetLite.

In a statement issued to the company and filed by Jet on the BSE, the auditors have maintained that, “The appropriateness of assumption of going concern is dependant upon the company's ability to raise requisite finance or generate cash flows in future to meet its obligations, including financial support to its subsidiary."

For our readers' information, a ‘going concern’ is an accounting concept under which accounts are prepared on the assumption that the company is likely to continue operations for an indefinite period.

The auditors' report also mentioned that the company’s subsidiary, JetLite’s net worth has also eroded.

Despite this negative development, the scrip is up by 5% at Rs 249.40 per share. However, this spurt in prices is a result of short covering, and we don’t expect it to be sustainable.

Going ahead, in order to ease the situation, the company has claimed that it is very confident of getting capital infusion very soon. It is currently holding talks with leasing companies, and plans to raise USD 300 million in the sale and leaseback of 40 aircrafts owned by the company. 

In a similar scenario, the Vijay Mallya-owned Kingfisher Airlines (KFA) had also been warned by its auditors to infuse fresh capital to maintain its ‘going concern’ status. We all know what has become of the company since then. In fact, the foremost reason for KFA to fall into trouble was disputes with its leasers, who owned most of its aircrafts. 

In the recently-concluded Q2 earnings season, after posting a decent an 8% growth in its topline to Rs 33321 cr, Jet Airways reported a loss of Rs 713.6 cr as against a profit of Rs 12.4 cr for the same period last year.

However, the situation is very tricky for the airline industry overall. The domestic airlines are facing heavy turmoil as on the back of grim financial results, mainly hurt by rising fuel and interest costs. The recent depreciation in the Indian rupee has also worsened their problems. Despite a decent topline performance, the pressure on the margins front is what seems to be hurting the aviation companies, with Jet Airways being no exception.

In conclusion, amidst all the hurdles faced by the aviation industry at large, we believe Jet Airways will find it quite difficult to sustain its operations smoothly for a long time ahead. The likely hope for the industry may emerge from the govt.'s decision on FDIs in the sector. As of now, the situation seems very gloomy, and it is only a matter of time when we shall see a major crash landing by one of the aviation stocks.