India’s largest private sector domestic airline, IndiGo, is readying a war chest of around $2 billion through a mix of free cash and restructuring of loans to sustain its operations during the pandemic-induced crisis.

The airline has reduced the daily cash burn by 25 per cent to ₹30 crore and is negotiating with export credit agencies for moratorium on principal repayment for aircraft on finance leases.

“Managing cash continues to remain our primary focus and we continue to work with all our stakeholders to raise liquidity,” the spokesperson for the airline told BusinessLine .

The spokesperson said that the airline ended Q1 FY21 with a total cash of ₹18,400 crore that includes free cash of ₹7,500 crore and restricted cash of ₹10,900 crore. This was ₹1,400 crore lower than in March-end.

With daily cash burn falling to ₹30 crore, the airline will be able to sustain its operations for about 250 days solely on free cash.

“Through all our efforts at cost reduction and revenue generation, we have managed to reduce our fixed cash burn. We are focussing on strengthening our liquidity by optimal working-capital management, obtaining additional liquidity through various sources and, most importantly, by adding capacity,” the spokesperson said.

On how the airline is managing its finances, the spokesperson said IndiGo’s free cash reduced by ₹1,400 crore during the quarter. Hence, the current free cash balance is around ₹7,530 crore. The airline had a free cash balance of ₹8,930 crore in the previous quarter. This is despite the fact that the airline’s operations were shut for much of the period.

Flight resumption

The airline has started operations in phases and is currently operating over 400 flights a day. These flights are “contribution-positive” and “will help us set off our fixed costs partially,” the spokesperson said.

The airline has also taken measures to reduce fixed costs. “We are trying to capitalise on new business opportunities and are profitably pursuing repatriation, charter and cargo flights.”

The airline is rolling out initiatives like freezing of supplementary rentals and negotiating favourable terms with suppliers, all of which are expected to help generate about ₹4,000 crore.

It is also working on the sale and leaseback of its unencumbered assets. It is in discussion with Export Credit Agencies for obtaining moratorium on principal repayment for aircraft on finance leases. These measures are expected to help the company raise a further ₹2,000 crore.

The spokesperson said the airline ended the quarter with a total debt of ₹23,550 crore, including a capitalised operating lease liability of ₹21,180 crore.

“We have a strong balance sheet and we remain laser-focussed on reducing costs and shoring up liquidity. Our cash balance remains healthy and our debt levels remain manageable.”

Recently, Fitch Ratings had said IndiGo is well placed to consolidate its market position in the coming months due to the liquidity pressure at rival airlines. Its share of domestic passengers has already risen to 60 per cent by end-July from 48 per cent in 1Q20,” its report said.

A higher market share, apart from cost-cutting measures, will allow IndiGo to improve performance after a sharp drop in earnings in 2Q20, even though overall travel demand is unlikely to rebound quickly, the report said.

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