The agency said the airline industry continues to face headwinds of rising fuel costs and weak pricing power due to excess competition.
Ratings agency Icra has downgraded the long-term rating of Jet Airways borrowing programmes to BB from BB+ with a negative outlook.
The agency downgraded the long-term rating assigned to the Rs 698.9-crore non-convertible debenture programme, the Rs 4,970-crore long-term loans, the Rs 645.0-crore long-term, fund-based facilities and the Rs 700-crore long-term, non-fund based facilities of Jet Airways to BB from BB+.
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 A4 from A4+.
“The rating downgrade considers the continued deterioration in the operating and financial performance of the company because of its inability to pass on the increase in jet fuel prices to the customers,” Icra said in a release.
The rating agency said the airline industry continues to face headwinds of rising fuel costs and weak pricing power due to excess competition. “This is expected to result in a further weakening of the company’s performance in the near term,” the agency added.
Icra said the yields in the domestic aviation industry have moderated because of increased competition due to the addition of new players and capacity enhancements by the existing players. Jet Airways witnessed a year-on- year decline of 0.3% in its revenue per available seat kilometre (RASK) during FY2018 despite a 2.3% increase in its passenger load factor (PLF) to 83.6%. Furthermore, its cost per available seat kilometre (CASK) increased y-o-y by 2.5%, primarily due to the increase in jet fuel prices. This resulted in a decline in its operating profit margin (OPM) to 0.8% during FY2018 from 6.9% during FY2017. Weakened OPM coupled with a decline in non-operating income resulted in the company reporting a net loss of `724.9 crore in FY2018. The combined impact of steadily rising fuel prices and Rupee depreciation has resulted in Jet Airways reporting an operating loss of Rs 1,000 crore in Q1 FY2019.
Icra said it 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 or the company is able to raise adequate funds to ease the liquidity pressures.