Thursday, February 5, 2009

Jet-KF alliance likely to hit air pocket

MUMBAI: The differences that have cropped up between Jet Airways and Kingfisher Airlines, the country’s two largest private carriers, on the

issue of FDI participation by foreign airlines in the domestic aviation sector threaten to derail their strategic alliance.

It was known that all was not well between the airlines, but it now appears that the issue is now out in the open. The tussle between the carriers on the FDI issue may have a bearing on their alliance that was formed last October to streamline capacity, rationalise routes and to bring about a code-sharing arrangement.

“We don’t see any value in the FDI policy currently as airlines globally are bleeding. Jet Airways is neither discussing stake dilution with any foreign airline, nor is it referring the case to the government,” Jet Airways CEO Wolfgang Prock-Schauer told ET recently. Kingfisher Airlines chairman Vijay Mallya earlier wrote to the government to allow FDI in domestic carriers. Interestingly, Kingfisher is believed to be discussing a stake sale of 25% with three foreign airlines.

“At this juncture, a difference in opinion between them (Jet and Kingfisher) may hamper the alliance, which is yet to take off after three months,” an analyst with a Mumbai-based domestic brokerage firm said, on condition of anonymity.

Naresh Goyal, Jet Airways’ promoter, and Vijay Mallya had a closed-door meeting in London in December to look for ways to avoid duplicating flights on domestic and overseas routes. The meeting did not yield anything of consequence. With the Jet-Kingfisher alliance not progressing too smoothly, a difference in opinion on the FDI issue is not the best piece of news at this juncture.

Current regulations do not allow foreign carriers to hold equity, either directly or indirectly, in domestic airlines. Importantly, India is the only country where foreign institutional investors are allowed to invest in the aviation sector with a FDI cap of 49%.

Most Indian carriers are already sitting on significant debt and raising additional resources may not be easy in the prevailing conditions. United Spirits (USL), a UB Group company, has pledged its shares to fund Kingfisher’s expansion plans.

Jet Airways not to opt for FDI in present market conditions

Mumbai (PTI): Private air carrier Jet Airways on Tuesday said it would not sell its equity to foreign carriers at this stage in view of the low valuation in current market."We will not go for any equity dilution to foreign air-carriers at this stage as it will not fetch us the required funds," a senior Jet Airways official told PTI here.

Jet Airways is the largest air-carrier in the country. Naresh Goyal's Tail Winds holds 80 per cent stake in it.Jet's assertion comes in the wake of the Union Government's proposal to allow domestic airlines to sell stake to foreign carriers.

Last year, Goyal was looking at diluting his stake to raise funds. But the stock markets have been on the downslide since January 2008, leading to a slump in Jet Airways stock prices, too.

"Low valuation was the reason for not going ahead with Goyal's dilution last year, too," the Jet official said.

Even industry experts feel that it would not be a good move for the air carrier to go for equity infusion from overseas in view of the prevailing market conditions.

"It is correct on Jet Airways part not to go for equity infusion from foreign airlines and rather manage cash on their own," an aviation analyst from a brokerage firm said on anonymity.

The market cap of Jet is currently Rs 1,500 crore, which is too low valuation to dilute the stake, he said.The current FDI norms prohibit overseas airlines from picking up stake in Indian carriers.

Kingfisher Airlines Chairman Vijay Mallya had sometime ago written to the Union Government to allow FDI in domestic carriers to make them internationally competitive.With mounting losses, liquidity crunch, Mallya is scouting for foreign funds to keep his airlines afloat.

Jet Airways to hedge 25% ATF

MUMBAI: In a move necessitated by the sharp volatility in the prices of crude oil in the past 10 to 12 months, the country’s largest private

carrier Jet Airways is actively concluding the final negotiations for hedging about 25% of its aviation turbine fuel (ATF) requirement with two oil companies. During that period, oil prices rose to an all-time high of $147 per barrel but tapered off to as low as $35 per barrel in recent times.

The hedging deal is almost final and is expected to go through anytime now. When contacted, Jet Airways CEO Wolfgang Prock-Schauer told ET: “We are discussing with oil companies for hedging and it will go through in the next few weeks.” He declined to give any more details.

Hedging is a process wherein buyers lock in on the prices of final products for settlement at a future date to insulate margins from price volatility. Hit by high expenditure on ATF, the Naresh Goyal-promoted airline incurred a net loss of Rs 214 crore in the quarter ended December 31, 2008.

Said senior consultant with KPMG India Mark Martin: “A historical analysis of ATF prices indicates that airlines could have benefited by hedging against their exposure to ATF price volatility.”

Last fortnight, oil marketing companies announced a 3.4% hike in ATF prices following a rise in international prices of ATF. This is the first time since August last year that aviation fuel prices have recorded an increase. In Mumbai, home to the nation’s busiest airport, ATF costs Rs 32,447.65 per kilolitre as of Saturday night. “At these prices, when crude is hovering around $45 and expected to touch $80, it makes sense to hedge. Airlines can take a partial long hedge to lock into prices, otherwise unexpected volatility may result in losses,” said Daljeet Kohli, head of research at Emkay Global.

ATF accounts for 50% of the operating cost of airlines, which are expected to post a combined loss of $2 billion for fiscal 2009, primarily due to high ATF prices. India is among the most expensive places to buy ATF due to higher and differential sale-tax structure in different states.

Jet Airways operates a fleet of 87 aircraft, which includes 10 Boeing 777-300 ER aircraft, 12 Airbus A330-200 aircraft, 51 classic Boeing aircraft and 14 ATR 72-500 turboprop aircraft. It flies to 63 destinations at home and abroad, including New York, Toronto, Brussels, London, Hong Kong, Singapore and Colombo.