Jet Airways aims to save Rs 611.5 crore with help from Etihad
Jet Airways aims to save $100 million (Rs 611.5 crore) by renegotiating contracts with its vendors and suppliers with help from its strategic partner Etihad Airways.
"Whilst on one hand, the company is upgrading and repositioning itself based on its own operational strengths, on the other hand, it will exploit and capitalise on synergies arising from its alliance with Etihad as a strategic partner," the beleaguered carrier said in its annual detailed company statement for the year 2013-14.
"Common areas of benefits include joint sourcing of aircraft and equipment, sharing of best practices, co-ordination of flights, leasing of spare aircraft, joint procurement of fuel and other services etc. resulting in cost savings for both the airlines," it added.
Saving costs and active synergising with its financially muscled partner is critical for Jet to fly out of its quagmire of losses. Etihad owns 24 per cent in Jet. Jet's latest reported financial figures showed a record quarterly loss Rs 2,153.57 crore in Jan-March, up more than four times on year.
Annual loss surged more than fivefold to Rs 4,129.76 crore, the equivalent of the combined yearly losses of the previous six years. Consolidated net worth fell to a negative Rs 4,174.86 crore from Rs 1827.71 crore the previous year. It's net debt was Rs 10,580 crore, almost nine times its cash reserves. It will report its financial results for the April-June quarter on Monday.
Jet's cost-saving target is in line with the recommendations of Seabury, a US consultant it hired to suggest network changes and cost saving measures. In its report, submitted in April, Seabury said Jet needs to urgently initiate measures to cut costs by at least $100 million.
The measures include headcount reduction of pilots, crew, ground handling and sales staff, a reconfiguration of a fifth of its fleet to all economy class, reworking out-of-market maintenance contracts and bringing significant changes to its data management systems many of which are still done either manually or through multiple sources or outdated functions.
ET has reviewed the report. The report said Jet can achieve cost savings of $9 million just by shifting to local pilots from expats. For instance, an expat pilot flying Boeing 777 takes a salary of $18,000 per month, while a local pilot takes $13,000 according to the report.
The report advised the company to reduce the pilot headcount by 70-35 on Jet-Lite and an additional 35 on its Airbus A330 to increase their average utilisation or the number of block hours put in each pilot.
The report also pointed out severe training constraints in Jet and said the airline lost 15,000 productive days last year, equivalent to the work put in by 57 pilots, because of its training constraints.
On maintenance, the report pointed out several contracts which are outdated and at higher-than-market price, for instance spares and components usage agreement signed with Lufthansa Technik in 2007.
The report indicated more headcount among airport staff. The airline has about 5,000 staff at the top ten airports and some airports would need a reduction of up to 40 per cent. It also said the airline should give out its Brussels lounge for use by other airlines for third party revenue. It said it should reconfigure 21 Boeing 737 planes to an economy class configuration, which will lead to a net additional revenue of $40 million.
As part of its deal with Etihad, James Hogan the middle-eastern carrier's CEO and James Rigney, its CFO have joined Jet's board. In its annual report, Jet said they have written to the company stating that they do not want to receive any sitting fess.
But flight costs may go up…
Jet may be incurring higher costs on its flights via its new international hub at Abu Dhabi. The airport is currently in consultation with airlines for raising tariffs to cover costs for its expansion, Bashar Jawhari, vice-president, strategy and monitoring, at Abu Dhabi Airports told ET. He added that no decision to revise tariffs has been taken yet.
Earlier, Jawhari had said that if tariffs are raised there won't be any concessions given to Etihad or its partner carriers. Jet started flights from Kochi, Chennai, Bengaluru and Hyderabad to Abu Dhabi between May 2013 and March this year and plans to add more in future.
Abu Dhabi's expansion plans include the AED 10.8-billion (Rs 17,982 crore) midfield terminal, which is planned to open on 17 July 2017. The construction of the 700,000 square metre terminal building started in 2013 and has already completed some phases.