Jet Airways, having spent the past 12 months trying to sink Kingfisher by lowering its fares to a point where it is impossible to breakeven, has now had the audacity to seek government help to secure additional working capital loans from banks and an extended credit period from state-run oil marketing companies. Who are they kidding? If the Indian authorities do give help to Jet then they are compounding the already solid view that their market is a joke. They should let Jet feel the full pain from their actions so they either change their spent business plan or get out of the market. Could you imagine what the situation would be if this airline were in any other country?
Jet has a two-month credit period with oil companies, and hopes to get this extended to three months. Jet also wants help to secure 10 billion rupees ($202.57 million) in working capital loans. In January, Jet posted its fourth straight quarterly loss on the back of mismanagement.
India's airlines have a massive debt pile of about $20 billion. Jet itself has debt of about 140 billion rupees ($2.84 billion). Jet is yet to pay January salaries to employees.
Airlines in India, in order to break even and allowing for further rises in fuel need to be looking at 15% or above increases on all base ticket prices across the domestic network.
Meanwhile Kingfisher Airlines has delayed the release of its quarterly results for the period to December. Not a good sign.
Let’s stop beating about the bush
Boeing and Airbus have a great many aircraft still on order from the Indian market so this is a worry for them. If the OEMs were not worried about their orders being financed then why are they speaking to us every five minutes about the need to accelerate and wrap the Cape Town Treaty to encourage more capital market investors and the like. The reality is traditional aircraft finance is drying up, global finance is drying up, bonds are not safe and oil, although a good short term gamble, remains a mid-term worry and a risk. Put your money in gold or transfer it to US$ and put it in a fire safe in your home.
Just look around you: There is already a slow motion run on banks in Greece, Portugal, Italy, Spain, Hungry, Ireland and Russia.
Gold is safe as houses and may reach $2,500 so long as central banks keep printing money. The question is how long can the Eurozone keep kicking the can down the road before reaching a junction and get run over by the fiscal responsibility truck?
More worrying is that the EU has cancelled today’s meeting with Greece on the bailout saying: “We’ll do it over the telephone”. Greece is in a virtual civil war, but look at what is going on in Spain – It turns out Spain has at least €1.7bn worth of pesetas still in circulation somewhere and some areas are reintroducing the peseta in a bid to kick-start local economies. Residents in Villamayor de Santiago, 80 miles south-east of Madrid, initially held onto the old money for fear the euro would fold. Now businesses in the region are using the peseta in full and the movement is spreading across Spain with posters turning up in hard hit rural towns. The euro is collapsing under people power in small towns already. Watch this story closely.
In all this Warren Buffet sees aircraft as a sound and safe investment – now there is something you should read into.