Jet Airways' Q3FY19 results (Underperformer) - Await clarity on resolution plan…

Q3FY19 result highlights

• Jet Airways (Jet) reported consolidated net loss of Rs7.1bn (est: 9.3bn) in Q3FY19 led by higher fuel expenses, higher maintenance costs and higher rentals.
• RASK grew marginally by 1.4% yoy to Rs4.34 (est: Rs4.17). Unit fuel cost grew 30%yoy to Rs1.7, leading to a 11.2%yoy drop in gross spread to Rs2.6 (est: Rs2.4). Maintenance costs grew 33.7%yoy to Rs0.5.
• Pax traffic declined 6.6%yoy to 7.1m, ASKM declined 1.4%yoy to 14.8bn, RPKM declined 3%yoy to 12.2bn and PLF contracted 130bp yoy to 82.7%. Average fare grew 7.5%yoy to Rs7,738/pax.
• Revenue remained flat yoy at Rs64.1bn & was above our estimate of Rs61bn. EBITDAR declined 62.1% yoy to Rs3.7bn (est: Rs631m) due to higher maintenance and higher fuel expenses. CASK-fuel (reported) grew 9.8%yoy to Rs3.1 and on adjusted basis (ex - fx MTM gain of Rs3.5bn), grew 18.1% to Rs3.37 due to lower traffic volume/load factor.
• Gross debt reduced Rs7.6bn qoq at Rs76.5bn and net debt reduced by Rs7.5bn qoq to Rs73bn.
• Jet Airway has approved a Bank Led Provisional Resolution Plan – (BLPRP) prepared by its SBI, lead lender. BLPRP estimates funding gap of ~Rs85bn (including proposed repayment of aircraft debt of ~Rs17bn), which will be met by mix of equity infusion, debt restructuring, sale/sale and lease back/refinancing of aircraft among other things. The BLPRP envisages conversion of lenders’ debt (quantum unspecified) into equity at an aggregate consideration of Rs1 and appointment of lenders’ nominee on the Board of the company.  

Key positives: Debt reduction qoq.

Key negatives: Higher maintenance & fuel costs during the quarter.

Impact on financials: Estimate net loss of Rs550m in FY20 from net loss of Rs3.2bn earlier, due to lower interest costs and lower fuel costs.

Valuations & view

Pending disclosure of the quantum of debt to be converted under BLPRP and other specifics of the resolution plan like equity infusion, additional credit lines and final shareholding of promoters it is difficult to make any conclusions on the impact of BLPRP. Also, the price at which further infusion of funds would be done by promoters, Etihad and other stakeholders remains the key. In the meantime Jet Airways’ profitability is likely to remain under severe pressure amid muted traffic growth and higher costs. We value Jet Airways at 8x FY20E EBITDAR at Rs209 and maintain our Underperformer rating on the stock.