Jet Airways continues to worry as Airbus signs another landmark deal

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By TESTCustomwebLP TESTCustomwebLP October 22, 2013 21:34

Jet Airways continues to worry as Airbus signs another landmark deal

Indian international traffic to and from the country continues to increase and remains on course to double by the end of this decade but domestic traffic shows no sign of stemming its slowdown. It is against this backdrop that Jet Airways has written to the Airports Authority of India (AAI) seeking an extension of the March 31st deadline to pay an enhanced security deposit to the airport operator. In the letter Jet Airways stated that it was going through a difficult period due to the fall of the rupee and that banks had delayed any more capital injections for the time being. Jet’s situation will improve when it gets the Etihad money is so badly craves but if at any time over the next few months Etihad pull from the deal then Jet Airways is going to collapse further into problems. Etihad of course has its attention fixed on increased traffic rights into India, and well it should for it is turning out to be a goldmine. Jet Airways is sacrificing much of its long haul ambition to Etihad and so it now needs to focus on pulling its aircraft out of the Indian domestic market and re-focusing on Southeast Asia. Some 15 new routes are planned including Oman, Muscat, Kuala Lumpur, Guangzhou but concentration on Indonesia and Singapore and Macau should be a priority in the short term to collect underserved traffic to the gambling hubs of the region.

But even so – Jet Airways plans to release RFPs into the market to lease more aircraft and indeed purchase additional aircraft. On the latter there are some good mid-to-late life aircraft deals that can be had but on the former, given that Jet Airways failed to pay ILFC on time recently and also has significant cashflow and business model issues right now, you have to wonder both who would lease into them and why the airline is thinking about leasing when it has so many worries about FX fluctuations, given that leases are in US dollars.

The jet airways board will meet tomorrow to approve their fiscal H1 and quarterly figures to the end of September 2013. From that meeting it should be announced that the Brussels hub operation is being discontinued due to the Etihad deal. That will make interesting reading indeed. Look out for any fall in domestic margins below the already dire 3.6% mark last reported. But also look out for any increase in international margins from the 17.4% last posted – Any fall in the international margins will be seen as very bad news indeed.

Can Jet Airways compete with AirAsia and SIA on medium haul international routes? It can but those 17% margins look likely to fall in the mid-term as competition heats up. The outlook for Jet Airways remains uncertain and riddled with problems. Consolation comes in the form of Etihad’s Vice-President (finance) Rangesh Embar, who is expected to join the Jet team soon. Meanwhile, VivaAerobus has signed a purchase agreement for 52 Airbus A320 Family aircraft (40 A320neo and 12 A320ceo), representing the biggest Airbus aircraft order by a single airline in Latin American history. VivaAerobus will replace its entire fleet of 737-300 to become an all-Airbus carrier by 2016. This order marks yet another landmark order for the Airbus sales team, who in 2013 have been consolidating their position in traditional Boeing only territory.

Impressive stuff from Airbus to be sure, but the VivaAerobus order also marks another impressive turn of events in the long story of Maurice Mason and his Irelandia Aviation and Kite investments brands. Make sure you catch him along with Stephen Hannahs of Wings Capital Partners and Matthew Ray of Victory Park Capital along with many other investors speaking and attending at Airline Economics Dublin on the 20th and 21st January 2014.

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By TESTCustomwebLP TESTCustomwebLP October 22, 2013 21:34
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