How Jet Airways can survive: Here's what the airline's auditors advised

Auditors of Jet Airways have warned that the company's continuance as a "going concern" depend on deeper synergies with Etihad Airways and its ability to raise funds in the future. Wholly owned subsidiary JetLite posted significantly higher losses in FY14 than the previous fiscal and had negative net worth as on 31 March, 2014.

In other words, unless the partnership with Etihad works out, more cash flows are generated by the Jet Airways' management and JetLite is offloaded, the airline will remain in serious financial trouble.

Jet has been steadily losing market share last few months in the domestic market but now, an even tougher operating environment could develop as two new airlines arrive on the scene. This could put pressure on fares and make a turnaround that much tougher for Jet Airways.

There have already been some unsubstantiated reports of the airline looking for a buyer for its loss making subsidiary JetLite. And the airline has recently spoken of a fleet reorganisation between Jet and JetLite. But will attempts to offload the loss making subsidiary, frequent fare discount schemes to take on aggressive low cost carrier competitors and deeper operational synergies with Etihad really save Jet unless it finds more funds to continue daily operations?

RD Kamat, Partner with Deloitte, Haskins and Sells LLP has said in the auditor's notes in Jet Airways' Annual Report for 2013-14 "Note 42 regarding preparation of financial statements of the company on going concern basis for the reasons stated therein. The appropriateness of assumption of going concern is dependent upon realisation of the synergies from alliance with the strategic partner and/or the company's ability to raise requisite finance/generate cash flows in future to meet its obligations, including financial support to its subsidiary."

JetLite's net worth was negative in the last fiscal and losses stood at almost Rs 430 crore. The erstwhile Sahara Airlines was acquired by Jet Airways in 2007 and has been bleeding ever since.
As explained earlier, JetLite is not the only trouble staring Chairman Naresh Goyal in the face. His beloved airline is already seeing increased competition from the two new Tata airlines exerting pressure on fares on some routes.

Jet has already seen a drastic reduction in market share over the last several months on domestic routes and resorted to unprecedented fare discounts last month. Perhaps, these discounts will continue as it looks to mitigate any possible negative impact of AirAsia India, which has begun operations, and Tata-Singapore Airlines, which is expected to begin flying from the winter schedule. While AirAsia India operates a no-frills airline, Tata-SIA will be a full service carrier. Jet has a full service operation and an low cost carrier arm under the brand JetKonnect.

In the annual report, Jet says "with liberalisation of the FDI policy in aviation, two new airlines are expected to commence operations in India during the next fiscal. Entry of new airlines will directly increase competition and will lead to more pressure on some routes.However, steps have been taken to mitigate the impact on Jet."

The airline has taken many steps to further enhance synergies with equity partner Etihad. It has enhanced connectivity from various Indian cities to Etihad's hub Abu Dhabi and already provides many onward connections. Jet remains focused on developing its home hubs at Mumbai and Delhi. International operations continue to expand from these cities, with connectivity available from across India.

In the annual report, it says an example of this is the recent commencement of non-stop services between Mumbai and Paris. In the coming year, it said it "will continue to roll out new non-stop frequencies between India and markets such as Doha, Dubai, Colombo, Bangkok and will start services to new markets such as Ho Chi Minh City in Vietnam. Indian hubs will continue to form the largest and most significant part of your company's network with regularly expanding reach across domestic and international markets."

So fleet rationlisation between full fare and LCC arms, chopping off loss making domestic routes, enhanced synergies with Etihad all seem to be working fine. The trouble spots still seem to be working capital requirements, reining in costs and fighting increased competition from domestic competitors. Will Jet rise to these challenges?