Jet Airways in profit zone on cheaper fuel but auditors red flag going concern status

New Delhi - Auditors of Jet Airways have raised red flag over the carrier's 'going concern' status, saying the assumption is dependent on various factors, including its synergy with Etihad and ability to raise funds.

A company is termed as a 'going concern' if it has sufficient resources to continue to operate indefinitely
and to avoid any potential bankruptcy risks.

Jet Airways, which turned profitable in the three months ended December 2014, today said strategic investment by Etihad Airways and other initiatives are expected to provide sustainable cash flows for its business.

Hence, the financial results continue to be prepared on a 'going concern basis', it said while announcing the latest quarterly results. The auditors' red flag comes despite the company swinging back into black.

 Jet Airways in profit zone on cheaper fuel but auditors red flag going concern status

Reuters

Drawing attention to the aspect of 'going concern basis', the company's independent auditors have said the same is dependent on various factors.

"The appropriateness of assumption of going concern is dependent upon realisation of the synergies from alliance with the strategic partner, the company's ability to raise requisite finance/generate cash flows in future to meet its obligations, including financial support to its subsidiaries," they said.

Deloitte Haskins & Sells LLP and Chaturvedi & Shah have drawn attention to the matter in their independent auditors' review report to the board of Jet Airways.

Jet Airways has submitted this report along with its results for the three months ended December 2014 to the stock exchanges today.

According to Jet Airways, strategic investment by Etihad Airways and gradual implementation of the recommendations provided by a domain expert would help the company to achieve required operating cash inflows. This would be done through cost synergies, revenue management, network synergy and leasing aircraft, among others.

"These measures coupled with on going initiatives to raise funds are expected to result in sustainable cash flows for business and for providing financial support to its subsidiaries.

"Accordingly, the statement of financial results continue to be prepared on a going concern basis, which contemplates realisation of assets and settlement of liabilities in the normal course of business," Jet Airways said.

After seven straight quarters of losses, Jet Airways returned to profitability with Rs 3 crore profit from operations in the latest December quarter on the back of higher international passenger traffic and lower fuel prices.

It had posted a loss of Rs 284 crore in the same period a year ago.

Jet Airways turned profitable in the third quarter of current fiscal mainly on the back of 93 per cent jump in its "code share traffic".

Passenger traffic through code shares surged to 314,351 in the latest December quarter from 1,62,476 passengers in the year-ago period.

This is the first time after seven quarters that the carrier has posted a profit, Jet Airways said in a statement. In the 2014 December quarter, total income from operations climbed to Rs 5,436 crore from Rs 4,990 crore seen in the same period a year ago.

On a standalone basis, it reported a net profit of Rs 63 crore in the latest December quarter as against a whopping loss of Rs 268 crore in the year-ago period. It had a standalone profit in the September 2014 quarter as well.

Income from operations on a standalone basis stood at Rs 5,051 crore in the 2014 December quarter compared to Rs 4,536 crore in the same period a year ago.

The airline's total passenger revenue in the latest December quarter surged nearly 10 per cent to Rs 4,621 crore.

In the comparable period, the same stood at Rs 4,248 crore. During the three months ended December 2014, Jet Airways carried 5.8 million passengers, which is an increase of 10.4 per cent compared to 5.3 million passengers seen during the year-ago period.

Jet Airways CEO Cramer Ball said the company was "turning the business around" and on track to achieve the targets.

"The enhanced global connectivity we now offer along with our partner Etihad Airways and other strategic code shares has helped in a sustained increase in our international passenger traffic.

"Concurrently, our continuing focus on efficiency and network rationalisation have helped in achieving an improved business performance," Ball said.

While the global and local operating conditions have eased, Ball said, "we only expect to see the real impact of
the lower fuel price in the next quarter".

Besides, cargo revenue went up to Rs 382 crore in the third quarter of current fiscal. The same stood at Rs 363
crore in the year-ago period.

During the 2014 December quarter, the carrier rolled out its single brand full service product on all flights across domestic network.

"At the beginning of FY15 we outlined a three-year turnaround plan to get Jet Airways back to profitability.
Today our business performance provides hard evidence that we are turning the business around and are on track to achieve our targets," Ball said.

PTI

Updated Date: Feb 07, 2015 13:13:26 IST