Lenders hopeful of recovering at least a part of their an over Rs 8,000-crore exposure to Jet Airways continue to work to resolve the beleaguered airline’s woes by trying to bring in new investors.
By SBI Cap Securities
Lenders hopeful of recovering at least a part of their an over Rs 8,000-crore exposure to Jet Airways continue to work to resolve the beleaguered airline’s woes by trying to bring in new investors. Nothwithstanding these efforts, existing vendors who have not been paid for a while have, after a long wait, snapped ties with the company. Lessors seeking possession of their aircraft have already approached DGCA (regulator) to de-egister and subsequently redeploy their aircraft with other airlines. As slots at some of the key airports earlier alloted to Jet Airways remain unutilised (airports are the eventual owners of the slots), airport operators too have quickly moved to allot such slots on a temporary basis to other airlines.
When Kingfisher, which had an all-Airbus fleet, undertook major rationalisation in 2012-2013 (fleet down from peak of 67 to 12), IndiGo benefited the most. More importantly, the other critical resource for an airline, i.e., trained pilots are type rated for a particular model and need 6-8 months before they are certified (by DGCA) to fly a different type of aircraft. So, it is no surprise that SpiceJet is adding 16 737 NG aircraft (mostly those re-possessed by lessors from Jet Airways) under a dry lease arrangement; it could also find it easy to absorb the existing workforce (pilots, engineering and ground staff) and quickly deploy these planes to lock-in slots/bilaterals.
If it takes longer to resolve the Jet Airways issue, SpiceJet could well lease more planes (Jet Airways had a total of 84 737 NGs) — non-payment of lease rentals is a breach of agreement that entitles lessors to take possession and redeploy (cost efficient to do it in the same geography). In FY20, we estimate that SpiceJet’s capacity (ASKM) may go up 35% y-o-y on the back of its announced fleet induction plans. However, due to a sharp consolidation in system capacity, we have revised upwards our yield assumptions for H1FY20 from 3% to 5% (normalising back in FY21 as capacity is added gradually).
Consequently, FY20e EPS has been revised up 45%. We reiterate ‘Buy’ with a TP of `175 at 8x FY21 EV/Ebitdar.