CCEA Approves Jet Airway's $400 Mn QIP

The CCEA has given its approval to Jet Airways to raise foreign capital of $400 Mn through QIP. The proposal to issue 7.92 mn fresh shares at a price of Rs. 252.50 a piece, was made to FIPB, which referred it to the cabinet as the issue was for over Rs 600cr.

The cabinet's approval is conditional to Jet Adhering to the 49% FDI cap within the next 3 years and also that the promoter should not sell off his stake under the guide of the QIP issue; nor the controlling structure should change.

Presently, Naresh Goyal- led promoter company, Tail Winds Ltd, owns 80% in Jet Airways. Post issue, the promoter holding would fall to 42%. However, the stock has been raising steadily since the last 5 months (from Rs. 247 on 24 July 09 to Rs. 553 on 24 Dec). This could result in lower dilution in promoter holding as number of fresh shares to be issued would be lower.

The issue will help the carrier de-leverage its balance sheet which has a debt burden of Rs. 14,500 cr. Of the total debt, around Rs 10,300 cr is towards payment for aircraft. The remainder will be used to pay off dues to oil companies and the Airport Authority of India. Jet Airways has an outstanding due of Rs. 64.54 cr to AAI. Earlier this year, Jet had extended the schedule to repay Rs. 20 Bn from 2 years to 5 years. These loans were taken from Indian Banks in December 08 and January this year.

Debt burden is the biggest concern in aviation sector. Low-cost carrier SpiceJet, the debt outstanding on its books as of FY09 was around Rs 488 crore. Kingfisher's books reflected a debt of Rs. 6000 cr out of which almost one-third comes from purchase of new aircrafts. These airlines are also considering raising funds. Kingfisher Airlines is in talks with private equity investors to raise $600 million and use the proceeds to pay debt

2007 saw the 2 private airlines aggressively expanding operations through acquisitions. Jet Airways' bought Air Sahara for Rs. 1450 cr and Kingfisher paid Rs.550 cr to acquire 26% stake in Air Deccan. Can this be partly responsible for the mounting debt?
The Indian aviation industry has also suffered a slump in passengers. In April, the number of domestic passengers fell by 591,000 or 15.2% year-on-year. Rise is oil prices leading to costly air tickets was pushing passengers back to trains. The global financial crisis had hit the sector reducing business and leisure journeys which resulted in heavy losses for airlines.

Jet Airways reported a loss of Rs 406.7 crore in Q2 09, up from Rs 384.5 cr loss in the same period last year. It had a market share of 27% in November.

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