Jet Airways, the country’s largest private carrier, has pledged the entire promoters’ equity holding in its low-cost subsidiary JetLite to IDFC for a loan of Rs 325 crore, according to a Financial Express report by Nirbhay Kumar. Jet had acquired Air Sahara for Rs 1,450 crore in 2007 and renamed it JetLite to strengthen its foothold in the aviation market.
The development once again highlights the grim financial health of airline companies in the backdrop of growing competition, which has forced them to slash fares despite input costs remaining high. Overall, the domestic airline industry is marred by accumulated losses of around of Rs 30,000 crore and a combined debt of over Rs 60,000 crore. For instance, state-owned Air India has huge accumulated losses and is managing to survive on government bailout. Jet's private sector competitor, the Vijay Mallya-owned Kingfisher Airlines, also has a debt of Rs 6,000 crore and is gasping for survival. SpiceJet’s promoter Kalanithi Maran has also pledged his 87 per cent stake in the company to raise funds.
However, what has surprised analysts is the pledging of the entire shares of the company, which is unusual. “It (pledging shares) indicates that the company is facing severe liquidity crisis. Our analysis says that promoters resort to pledging the entire equity shares either when they face liquidity problems or they want to exit the company. One should be cautious while investing in such companies,” RK Gupta, Managing Director, Taurus Mutual Fund said.