Jazeera Airways K.S.C.P. (JAZEERA) Earnings Call Transcript & Summary

Hello, everyone. This is Mirna Maher from EFG Hermes and welcome to Jazeera Airways Fourth Quarter 2020 Results Conference Call. I'm pleased to have on the call with you today from the company, Mr. Marwan Boodai, Jazeera's Chairman; Mr. Rohit Ramachandran, the company's CEO; Mr. Krishnan Balakrishnan, the company's CFO; and Mr. Mostafa El-Maghraby, Head of Investor Relations. I'll now over the call to management for a quick presentation, and then we'll open the floor for the Q&A session. Please go ahead.

Thank you very much, Mirna, and good afternoon, everyone, and welcome to Jazeera Airway's earnings call for the fourth quarter as well as the full year of 2020. Today is an unusual call for me in several ways. This month, I complete 4 years at Jazeera Airways, and this is my 15th investor call. On one hand, those of you who know me can imagine how much I hate to announce annual financial results that has the word loss in it. No matter the circumstance, no matter the historic challenge, no matter the global industry going through a once in 100 years disruption, the very word loss is unacceptable to my team and for me. On the other hand, and perhaps appearing contradictory, the results that we announced yesterday are results that I am very comfortable with. We planned for this. We expected this. With everything that we had to endure, I consider this a very good result. And most importantly, it sets us up for a very bright future when the pandemic recedes and travel resumes. Over the course of today's presentation, we will, of course, take you through the facts. We will also expand on some of the reasons behind those facts. But most importantly, we will share with you elements of our strategic plan. Why should passengers fly with Jazeera in greater numbers in the future? Why will our aircraft fly to more destinations? Why should investors like you remain invested in Jazeera? What shape and size will Jazeera be in 2025? And what, if any, impact will the 2020 results have on these plans? All these questions, we hope to address during the course of today's presentation. In addition, Krishnan will also be providing you with a very comprehensive presentation about our financials, covering all the actions that took place during the year, in addition to our cash situation and accounting-related adjustments that happened during the fourth quarter as well as the whole year. Most importantly, we have with us today, Marwan Boodai, the Chairman of the Board of Jazeera, who many of you know from previous encounters, to present our forward-looking 5-year business plan. After that, we can open the door for any question and answers that you may have. During which time, we can clarify any comments, questions or queries that you may have. Knowing most of you at this stage, I'm sure you're well informed about the overall situation in Kuwait as well as following up regularly on the new decisions being made regarding public health. So the first 7 or 8 slides pertain to the general aviation landscape, the industry landscape and the sector worldwide. I will leave that for your reading at leisure. As such, I would like to take you directly now to Slide #10. I would advise you to have downloaded our investor presentation from our website. And in Slide #10, we will do a quick review of our fourth quarter operational performance. During the quarter, we carried 90,000 passengers through the limited available capacity with a load factor of almost 55%. Although we had initially hoped for more activity, as we discussed during the last investor call, the end of year airport closures and additional travel restrictions that happened in December have slowed down operations again. Utilization for the quarter stood at about 3 hours. Yields, on the other hand, remain on the high side as a direct impact of the limited and restricted supply to and from Kuwait, as well as a few other destinations. Moving on to Slide 11. Let's review our full year performance. You will see that we carried close to 700,000 passengers, of course, significantly lower than the $2.5 million of last year, which, if you recall, was the most active year in the history of Jazeera. However, and I reiterate here that attempting to create a comparison between this year and last year is simply unrealistic. Load factors for the year was 64.3% and all year, aircraft utilization stood at 4.2 hours, although yield was much higher at almost KWD 58. In the next 3 slides, we will discuss the financial performance of Jazeera during the fourth quarter as well as the full year. For the last quarter of the year, Jazeera reported a revenue of KWD 8.6 million and an operating loss of KWD 8.9 million and a net loss of KWD 10.9 million. Moving on to the full year performance on Slide 13. You will see that our operating revenue came in at KWD 41.4 million and an operating loss of KWD 20.7 million and a net loss of KWD 26.4 million. Although from an accounting perspective, the figures are indeed correct. Slide 14, which is the next slide, elaborates on a number of one-offs and adverse accounting treatments that we do not expect to see again in forthcoming years, and therefore, we need to analyze this in slightly greater detail. Let's now move to that very important slide. To start, we took a hit of KWD 1.6 million on our fuel hedge during the year. Krishnan, of course, will elaborate more on this in his section, but I'd like all of you to recall the crazy rollercoaster ride that Brent prices took during the year, particularly the first half. There was a very strange week where oil prices dipped into negative territory. And of course, these unprecedented events had an impact on our hedge. The second line covers provisions and write-offs that we took as we opted to be conservative and provision any -- against any accounts with the slightest of doubts. Many of these were receivables for about 7 or 8 years in the past, and we decided to be very conservative and clean our books and make sure that we close the chapter on any doubtful receivables. The third line is a special one that we've discussed before, and I'm sure many of you have inquired about it during your communications with Mostafa, especially that it relates to Jazeera's cash position and monthly cash burn. The value of KWD 6.4 million you see here is actual cash savings that we successfully managed to create with our negotiations with lessors, aircraft lessors. Unfortunately, as IFRS, the accounting standard, IFRS 16 stipulates, these savings cannot be recognized in our P&L during the same year as it was recognized, but will reflect over the life of these lease contracts. It's not politically correct for me to say it, but this is one of the reasons why I hate IFRS 16. Finally, there was a one-off noncash expense of KWD 4.8 million related to restructuring of our maintenance contracts. Again, this is a hit to our P&L that in reality should reflect as a benefit as this restructuring will only enable us to release KWD 3.7 million of cash, which, again, Krishnan will provide the details of in his brief speech. But it's also value-accretive as it allows us to realize significant savings in the future. I can cover this in greater detail during the Q&A session, if you wish. Let's now move to the next 2 slides and take a look at the performance of our terminal, Jazeera Terminal T5. The limited airport capacity throughout the year has clearly had its toll on KIA, Kuwait International Airport, in general and specifically, T5. If the airline is not able to carry passengers, it certainly follows that then no passengers will flow through the terminal. During the year, we had to waive several months of rent for our tenants and all the income related to passenger charges and fees, of course, they reduced drastically as well. This affected the revenue-generating power of the terminal as it closed the year with a reported revenue of KWD 1.3 million and a net loss of KWD 1.4 million. This, however, does not mean that we stopped our business development initiatives, because we took this time to actually set up the terminal for the next phase of growth and exploit the opportunities that it presents in the future. Some of these include our VIP lounge, which is VIV. It commenced operations during the year and served private flights and general aviation arriving and departing from Kuwait, not only from our terminal, but all the others as well. By the next call, I would be able to give you an update regarding a dramatic, new, exciting duty-free related initiative that we are embarking on. Additionally, we are finally closing construction of a very key operational support building that will streamline operations considerably as well as house functions such as in-house catering, line maintenance, ground operations, equipment and so on. Moving on to an overview of the operating environment and as highlighted earlier, operations continue to be distressed during 2020, given the impact of COVID-19. The initial resumption plan by the government that started in the first of August was actually shredded apart with the introduction of a list of banned countries, 34 of them, which include many of our active high-traffic destinations. Obviously, this acted as the main driver, directing our flights from 1 destination or another. I think the most important thing to remember, however, was that we were nimble and opportunistic, and when 1 door closed, we found a way to open another door which didn't exist earlier. A good example of this is what we did with respect to connecting traffic. With most of our traffic flows to and from Kuwait closed, our team decided to look at opportunities to connect traffic from points that were not connected before. So for example, we started carrying traffic from Dhaka in Bangladesh to Riyadh in Saudi Arabia; from Kathmandu in Nepal to Dubai; from Kathmandu to Doha and so on and so forth, completely avoiding the challenges of getting passengers to enter Kuwait, which, of course, in many cases, was not possible. As for our outlook for 2021, let's now move to Slides 24 and 25. The start is not very different from what we initially expected or forecasted walking into the new year. Currently, the inbound capacity restriction of 1,000 passengers per day was down from the 10,000 passengers per day. The government announced in the last few days, new measures, allowing all inbound passengers to enter Kuwait after having confirmed hotel bookings for institutional quarantine. This, of course, was suspended at the eleventh hour. And currently, only Kuwaiti nationals are allowed to enter Kuwait. So we continue with our operating plan of the last several weeks, where we have increased frequency to points like Bangladesh and Saudi Arabia. For the next coming months and as the rollout of vaccination accelerates, we are developing our own capacity at T5 to do PCR testing. Once the current restrictions are lifted as we are sure it will be in the weeks ahead, this will encourage more people to travel, and we expect there to be significantly more activity in the second half of the year, especially around the months of July and August. I will reconnect with all of you after my colleague, Krishnan, finishes his section. And now I transfer the line to Krishnan for the financials. Over to you.

A very warm afternoon to everyone. Let me quickly take you to Slide #28, which has the parameters for the fourth quarter of 2020. All these have been covered in detail by Rohit in his earlier slides, so I will not dwell on this and take you to 29, where you can see the performance in fourth quarter. We lost KWD 10.8 million in 2020 fourth quarter as compared to KWD 1.1 million loss in the fourth quarter of last year, primarily because of the lower level of operations, which I don't need to elaborate upon. However, you must note that in this quarter, the impact of the onetime costs that have been charged is about KWD 10.6 million. And therefore, effectively, the fourth quarter 2020 losses is only KWD 200,000 as compared to KWD 1.1 million last year. The balance sheet items will be covered in greater detail in a later slide. So I will skip now straight to 30, Slide #30 which covers the parameters for the financial year 2020. In terms of performance, already Rohit covered this in his portion, we lost KWD 26.4 million net as compared to a profit of KWD 15 million last year, primarily because the revenues were lower. Even net of cost, we lost about KWD 47 million of revenue, even though the yield held up at a much better level, and we had a benefit of KWD 9 million there. Ancillary revenue was lower. The fuel hedge had an impact. And we had some manpower savings, as Rohit mentioned, the measures taken by us earlier in the year to address the COVID situation, we had a lot of retrenchment, and that saved us KWD 3.8 million. If you go to the next slide, #31, on the balance sheet, the cash balance, net of bank loans and the short-term facilities reduced, of course, primarily because of the cash burn due to the losses we had during the year. Advance on maintenance reduced because of the restructuring of certain maintenance contracts. The total assets and the total liabilities increased because of the IFRS 16 impact. We did take 3 aircraft in the last quarter of 2019 that had a full year impact, plus we took one new aircraft in February 2020. And we extended the leases of about 12 aircraft. All of these had an impact, both on the ROU assets as well as on the lease liability. The receivables primarily comprised $9 million of reserves that we have paid already to the lessors, but they are recoverable as and when the shop visits happen, so they are shown as a receivable now. There is a KWD 3.2 million amount receivable from the government of Kuwait for charters we did in 2020 and about KWD 5.7 million is due from MROs, the maintenance service providers, of which KWD 3.4 million is due to come by end of next -- by end of April. The retained earnings, of course, were lower, obviously, because of the losses that we have made during the year. The measures that we did during 2020 soon after COVID had an impact on us in the month of March was, one, the Board of Directors very kindly recommended that we will not be paying the dividends to the shareholders for 2019. Despite 2019 being the most profitable year in the history of Jazeera, there were no dividends paid, and that saves us cash of KWD 13.5 million. Bank facilities that we had not drawn upon earlier and where available, we had to cap in order to make sure that we have a war chest available for the -- for facing the impact of COVID. Several cost control measures were taken. For instance, we had to reduce the number of employees by 37%, as Rohit mentioned earlier, and there was a reduction in the salary of all the staff. And we also negotiated several contracts, the maintenance, the leases and several other overhead contracts, which got us a lot of cost savings and especially cash savings. If you go on to Slide #33, this is reflecting the impact of the IFRS 16. So as Rohit already mentioned, we actually had cash savings by renegotiating the leases to the tune of KWD 6.4 million during the year 2020. These were actually cash, which we do not have to pay, and we never will have to pay. Unfortunately, the way IFRS 16 is structured, this benefit is spread over the remainder of the lease term of each aircraft. And as such, we will not see the benefit in the year in which we got the cash benefit, but we will see this benefit over the next 6 to 7 years, as we start with -- the benefit of the waiver start reducing our liability. So that is what is reflected in this Slide #33, where the impact of the cash versus what we have actually done in the books is reflected. Let me take you to the Slide #34, where we are talking about the cash burn. If you see, we had a cash balance of $23.7 million end of 2019. We took the loan, term loan called [indiscernible] of KWD 7 million. We took overdraft of about KWD 4.4 million, which remains outstanding as of end of 2020. So the total cash balance ideally should have been KWD 35 million. As against that, what we ended up in 2020 was KWD 19.6 million, plus KWD 3.2 million, which was due from the government. So in all, we had still a balance of 24 -- almost KWD 24 million. As -- against that, if you look at our change in cash -- therefore, the cash burn -- so between KWD 35 million and the KWD 23 million, there is a KWD 12 million, which primarily represents the cash burn we had during the year 2020, which also includes the fuel hedge payouts that we had to do. In addition to all this, I would like to mention that we will be receiving that 3.2 million from the government very soon. Plus we will also be getting an amount of KWD 3.7 million from a maintenance service provider, which is part of the agreement we just signed with them for termination and restructuring the contract. So that will also beef up our cash results. So from KWD 20 million, it will go up to KWD 26 million to KWD 27 million within the next 60 days. So the next Slide 35 is the depiction of the same cash burn. In terms of equity management, if you look at Slide #36, what we are proposing is to move the legal reserve to the retained earnings or the accumulated losses. This will be done as per the process. We will take it to the AGM. The Board has approved yesterday, to be taken up at the General Board meeting of the shareholders, which will happen soon, and this transfer will be effected. So we will end up the year with a current total equity of KWD 11.976 million. The next slide talks about the fuel price movements. But what is more important is to look at 38 -- Slide #38, which talks about the fuel hedge impact. So during 2020, the impact on our P&L was KWD 1.6 million that we took a hit because of the high -- the prices of the fuel coming down way below what we had hedged before. But the prices of use in 2021 have already hit the $60-plus mark, in fact, currently hovering around $63. Even assuming a $60 per barrel in 2021, we will see a saving of at least KWD 1 million in the P&L. And with this, I complete my section and hand over to Rohit.

Thank you very much, Krishnan. And now ladies and gentlemen, Mr. Marwan Boodai, Chairman of Jazeera Airways.

Thanks, Rohit. Good afternoon, ladies and gentlemen. I'm delighted to be here with you today. Yes, it's been some time since I joined this conference call and our Board of Directors wishes to -- me to present today their views of the results of 2020 and the view and the vision going forward. First of all, 2020 was indeed a special year for everyone globally and particularly here in Kuwait. If you are familiar with the -- what was happening in -- here in Kuwait, our government has taken an ultra-conservative approach to fighting the pandemic. Of course, only time will tell, well, whether that's the right approach or not, but we are here to live with the situation and manage the situation. I would like to thank on behalf of the Board, Jazeera management, led by Rohit and the rest of the team on how they have been extremely creative in managing the business and ensuring that we ended the year with almost the same cash we started the year. The mandate was very clear to the management team: It's not about profits. It's about cash preservation and how to contain that through a very rigorous action plan to reduce the cash burn, not to exceed KWD 1 million in a month. That is why that creativity, [indiscernible], and we're really proud of our people, and that's our best investment. As I said, we started the year with a good cash reserve. And as Krishnan has explained, the Board of Directors recommended to the shareholders not to pass any dividend for last year. And that has been indeed a support to our balance sheet, and we still have that cash in the balance sheet. We have still cash to carry us forward for the next 20 months, and we're optimistic now that the -- sooner than later with this pandemic will be over. In Kuwait, the government has taken, again serious action and the vaccination, and this should be completed later by July this year, which is a small country and we have the resources in order to ensure that the entire nation is vaccinated on time. We look forward that starting from August, that life will come back to normality. Nothing would be normal as it was before, but we will be in a much better position than last August or even at the beginning of this year. Let me talk about how do we look forward as a Board, and how do we look forward as Jazeera. We presented here on the slide of what we've done in the last 3 years. In simple terms, in the next 5 years, we'd like to double the fleet of Jazeera. We'd like to more than double the number of destination, and we'd like to double the profitability. Is that possible? Well, we just have to look at one thing. What have we done in the last 3 years? I always take 2020 as a year that we have just to raise out of the math. The -- starting 2017, '18 and '19, we started '17 with 7 aircraft, and we ended '19 with 13 aircraft, doubling the aircraft during that period. We started with profits that was doubled, has reached our highest profits in 2019. We were going in that trajectory, in that direction, but for the unfortunate situation at the pandemic that stopped us in 2020. Going forward, we believe that we can do the same now and carry the airline from 17 aircraft at the end of this year, all the way through to 30 aircraft and looking at doubling the profits during that period of time. Here I'm talking only about one side of the group, which is the airline. Let's not forget about the infrastructure and the terminal. The terminal is an integral part of the business model of Jazeera. It proved its value and its ability to support the airline's operations. On the other hand, it's a very promising investment once we have the flow of passengers coming through back to what was the plan. We believe that Jazeera's Terminal is about to witness another expansion to meet our growth plans to reach the 30 aircraft. And for that, Jazeera's Board have approved the management to add up more resources and will allocate more financing cater for the terminal operation. We're excited about the new project that the management are embarking on, such as the duty-free and we're encouraging the management to come up with more such plans that complement the main business of the airline and depends on the number of passengers that fly through in Jazeera. So once again, I'd like to reflect the Board of Directors' decisions that we made yesterday, where we had a close look at the balance sheet. We looked at our cash position. We looked at the IFRS 16 and its impact. We looked at the savings that we made last year through the rigorous negotiation for all our cost bases, et cetera, that the management have succeeded to achieve and the Board decided that we don't have a need to increase the capital or for more equity to support the operation of the airline. And we do believe that we get sufficient funds to carry us forward based on the cash balance that we have today. The Board looked very careful at peers internationally. I'm talking about LCCs globally of an enormous figure size, even than Jazeera, and where our performance has met and exceeded many of them, despite all the restrictions that we had in Kuwait and here since our airport was closed as with the entire country actually was closed for most of last year. With that, I'm coming to the end to my presentation, and I'd like to hand over to Rohit, and I would like to thank them once again for superb results that we have achieved for 2020. Thank you.

Thank you very much, Marwan. And now we have come to the end of the management presentation. We are very happy to take any questions that you may have.

[Operator Instructions] Our first question comes from Sidharth Saboo from Arqaam Capital.

I have just a couple of questions. One question, obviously, on the maintenance contract. Can you please explain the nature of this maintenance contract that has been canceled? And what are the chances of this coming back once the operations are normal? Secondly, the equity is now at only KWD 11 million. Do you see any need for equity raise in, say, 6 months? Or -- and also, it has a hedge reserve component at minus KWD 1 million. What will be this hedge reserve in equity, if oil is at currently supposed USD 60 per barrel?

Right. Thank you very much. I'll try and answer all of these questions. The first one relates to maintenance contracts. As you know, one of the most important input costs into the airline business is maintenance. It's a cost that we will look at under a microscope. And over the last several years, as we have grown from 7 airplanes 3 years ago to our current fleet size of about 14, we have to ensure that at each stage, we keep chipping away at the maintenance cost. Now some of these costs are the result of long-term contracts. Now a contract that -- which makes sense where we have outsourced maintenance activities when we are a relatively small airline does not anymore make sense when we are in a medium-sized airline now, and we'd like to in-source them or look at slightly more cost-effective from a unit cost perspective solution. A good example is what we do with engines. Another good example is what we do with line maintenance, where earlier line maintenance used to be with the other airline in Kuwait, Kuwait Airways, and now we have in-sourced it. What we did with engines earlier was that Lufthansa Technik, and now we are looking at with CFM. We have a very, very attractive contract. Now a consequence of taking advantage of the low rates that prevail today in the market, is that there are some contractual terms that need to be absorbed while terminating one contract and moving to another contract. While it may appear on the P&L, it's not a cash-related expense. At the same time, it may appear in the P&L next year, but in the long term, it dramatically benefits the airline and dramatically reduces the unit cost. That's exactly what you see in that maintenance contract element of those one-off charges. Regarding equity, as our Chairman mentioned, we, as management, as well as the Audit Committee of the Board and indeed the entire Board, looked closely at -- from every angle, the need, if there is a need for additional equity and additional capital. And the decision taken by the Board and from what we can see from our own very healthy cash results despite the retail earnings. There's really no need at this stage for any additional equity. So the decision has been taken, but there is no need for additional equity and just the transfer from the legal reserve. Regarding the hedge reserve, I will ask Krishnan to give you more details on the subject.

Yes. So hi, Sidharth, the hedge result is primarily representing the value of the contracts that we have signed up for and which has not yet been concluded. If they were to be closed on the balance sheet date, then this would be the amount of loss that we would have had, based on the forward rate applicable on that date. However, I'm very happy to inform you that if you look at the position as of today or even as of end of January, the position has reversed. And instead of being a negative amount, it is now a positive amount in our favor. So we will actually now be having a positive result and not a negative hedge result.

On the same lines, I want to just highlight, if you add -- you would know from your several years of interaction with us that we tend to be conservative and we tend to be quite open about the situation. The four one-off elements that I have listed are indeed one-off and noncash, right? So they all add up to about KWD 15 million. Out of KWD 26 million, which is our posted net loss, KWD 15 million is of a one-off or noncash nature. I think that KWD 11 million balance, in my view, represents the true results for the airline. I hope I was able to answer your question.

Our next question comes from [indiscernible] from Franklin Templeton.

My questions are for Mr. Chairman. Basically, what sort of support is Jazeera receiving or expected to receive from Kuwaiti government directly or indirectly. That's the first question. And second question is, I wanted your opinion on like, there is talk of, shall we see as like KWD 3 [indiscernible] tax on departure and KWD 2 [indiscernible] tax on arrival, maybe starting from June and July. Do you think this is the step in the right direction towards your view? And the third question, if I may ask, like, what are your views on personal travel and corporate travel once normalcy returns. Do you think corporate travel will go back to 2019 levels considering the situation that people are used to talking or having conferences, remotely using Zoom or other applications. I just wanted to pick your brain.

Thank you very much for the question. I'd like to answer the first 2 questions, and I'll leave the third one to the professional, to Rohit. As far as the support from the government of Kuwait, well, we -- as you know, that we did not have any formal support just like airlines globally. So we did not get any for low payments. We didn't get any bailouts, and we did not count on any government loans. Let's not be deceived. Governments will provide loans, but they are quite expensive when you go into nitty gritty details of the terms and conditions of those loans. They could be converted into equity, they could -- they have severe charges, et cetera, on the long term. So as a Board, we decided to avoid as much as we can, and we succeeded getting any cash financing in terms of loans, et cetera, from the government. However, the Kuwait government did support part of the certain Kuwaiti staff that Jazeera has, and we've received some amounts around that. Most recently, they have decided as well to waive some of the DGCA charges based on the interruptions in the business when the airport was completely stopped, let's say, or during the lockdown. We are still in negotiation with the government. And hopefully, we'll reach some resolution soon, and they are very receptive about it that during the subsequent months after July, where we had the total shutdown from mid-March to end of July. So that has been accounted for. But for the period beyond that, even today or the near future, the rate and the charges should be accounted for in percentage of the actual operation at Kuwait International Airport. And we're working closely with the authorities to get that one approved. That will substantially as well reduce the cost. This is the kind of support we're getting from the government. On the other hand, we believe that as an airline, we should have a long term support, not a short-term support by having the reduced fees, reduced charges on the long term. That's what really pays up for, for the airline, for shareholders and its operation. The second question regarding the passenger service... [Technical Difficulty]

Apologies, ladies and gentlemen, we have lost connection with the speaker line, please stand by while we try to reconnect them. The call will resume shortly. Ladies and gentlemen, apologies for that. We should now have regained connection with the speakers from Jazeera.

Sorry about dropping off. I will continue with my comments on personal travel and corporate travel. So the target segment for Jazeera, the core as well as currently, are people who pay from their own pockets. So the vast majority of our customers are visiting their home countries or coming back after their brief holiday, companies that are bringing in their expat workers to join projects as well as seek freedom that is connecting traffic from one point in South Asia, for example, to another point in the Gulf. For better or worse, even before, we didn't have a huge segment of corporate traffic, that is typically the group of people you see wearing suits and carrying laptops. And I think, I do believe that, that segment is going to use more Zoom and teams and travel a lot less. And airlines that depend on that segment may be affected. I don't consider that to be a huge segment that will dramatically affect our business and our operations. That concludes my answer.

Our next question comes Nishit Lakhotia from SICO.

I have a couple of questions. First, on the receivables aspect. So you had mentioned that KWD 9 million is relating to reserves paid to lessors to be recovered at the time of shop visit. Somewhat didn't understand what exactly this is about, a bit more of elaboration on that would be helpful. And the other side of the working capital on the payables, I've seen your maintenance payable also balloon now. So what exactly is happening on that front? Because at one end, you are expecting some money to come from -- on the maintenance side, and then there is some maintenance payable increasing at around KWD 18 million on your balance sheet from KWD 12-odd million last year. So is there any setup there that will be happening? So a bit more clarity on that would be helpful. And in terms of overall operations, you have, if I'm not wrong, you have 1 more plane coming this quarter and possibly 2 more planes coming towards end of this year. So your fleet is already expanding quite significantly this year. So in terms of long-term plans of further adding a lot of -- more planes in a market which is a bit uncertain in terms of recovery, why exactly are we looking at that aspect as of now before we look at how we utilize all these current planes that will be coming in and possible stabilization by next year on your current expanded fleet?

Thank you, Nishit. I will pass on your question regarding maintenance payables to Krishnan, but let me try and address your first and third question. I think receivables from lessors, the way it works, so every time we take an aircraft, as part of the contract, we need to put aside a provision for maintenance, and these are maintenance reserves. When an engine or an aircraft goes for maintenance, we have to pay out for that particular maintenance activity to the maintenance provider, okay? Once the maintenance activity is completed, we then spend those invoices and those bills to the lessor for which we are reimbursed, okay? And those are the receivables that you see on our balance sheet, which is maintenance activity that has been carried out. We sent invoices for verification to the aircraft lessors, and they will contractually be paying us for that activity. Krishnan, please correct me if I'm wrong. And would you please also carry on regarding the maintenance payables?

Yes. So you asked the question about why the payables have increased and the receivables. So in the receivables, the amount of cash reserves that we pay. For most networks today, we are issuing only standby letters of credit in view of the maintenance reserves, which are payable. So except for lessor where we are continuing to take cash, this cash was -- used to be off-balance sheet because we used to take it out as a payment and go to the expense. So we have changed, the way it has been reflected. This year, the amount which is paid to them is shown both on the receivables side as well as the payable price. That's why you see the increase in the receivables, because the cash, which is already paid for them over the years, is now shown as renewable at the time of shop visits and at the same time, payable to the MRO at the time of the shop visit. So that's why the payables are also increasing. Plus in the payables, the amount of MR which we would otherwise have paid in cash but have issued LCs instead are included in the payable because they are contractually payable, but we are giving them security instead, and we will pay at the time of the shop visit. So that's why you see the payables also have increased.

I was just relating to those payables. I was trying to understand that. So basically, in terms of working capital, this will just set off with each other the payable versus receivables. So it's now going to make a lot of difference. Your payables will come down once you -- because you haven't really paid it, right? It's -- so once the receivables, once the lessor settles it, your payables will set it off with that?