Jet Airways sinks further, forced to ground 15 more planes
The new management at the crisis ridden Jet Airways does not seem to have put in more funds as it had assured earlier. As a result, the Company sank further. It had to ground 15 more aircraft due to non-payment of rentals to lessors. Thus, 69 of its planes have been grounded so far. Now, earning revenue and paying off liabilities have become more unlikely for the airline.
“…. an additional 15 aircraft have been grounded due to non-payment of amounts outstanding to lessors under their respective lease agreements,” Jet Airways said in a filing to the stock exchanges.
The fleet strength in the airline has, however, has come down to 20 now.
Till last month, Jet Airways, which is now under the new ownership, had taken 54 planes out of operations due to lease rental defaults.
Last week, the airline had informed the government it has 35 aircraft in operations.
On March 25, Jet Airways’ board approved a resolution plan formulated by SBI-led domestic lenders. Under the plan, lenders decided to take control of the airline and make a fund infusion of Rs 1,500 crore.
Jet Airways pays December salary partially, pilots unhappy
Jet Airways on Saturday cleared the pending salaries for December, but pilots maintain they would stop flying from April 1 if full dues are not settled. The pilots’ union has called for a meeting on Sunday to decide further steps.
The airline is yet to pay full salaries for January and February to its pilots, engineers and senior management. So far, only 12.5 per cent of December salary was paid and on Saturday the airline credited the remaining 87.5 per cent for the month.
“The board of directors and the management team are working as fast as possible to implement the resolution plan agreed with the consortium of Indian lenders to quickly restore the much-needed stability to our operations and build a sustainable future for the airline,’’ chief executive officer Vinay Dube said in an email to staff. Stating that these are complex processes and that it has taken longer than expected, Dube wrote, “We are only able to remit your remaining salary for December 2018”.
Founder Naresh Goyal stepped down as chairman of Jet Airways on March 25 as lenders agreed to provide Rs 1,500 crore in emergency funding as part of a resolution plan. His wife, Anita, too, resigned as director on the Jet board.
“We realise that this remittance does not lift the financial hardship that each of you are facing and we do not take your sacrifices for granted. We continue to work on additional funding on an urgent basis and shall advise you about the release of the remaining salary arrears as the funds come in,” Dube has told the Jet staff in his latest email communication.
The pilots’ union has made it clear that the partial payout is not acceptable. “There will be no flying unless the company pays us substantial salaries and provides a road map,” the National Aviators Guild, the pilots’ union, said in a message to its members.
Just a day ago, around 200 pilots had individually written to the airline CEO, threatening to go on leave of absence and warning of legal action for non-payment of dues. Engineers too have threatened to stop work if salaries are not paid.
Lenders’ consortium is preparing for an open auction for Jet, which has a debt of around Rs 8,500 crore. The expression of interest for the auction is likely by April 9 and final bids are expected by end of May. Goyal, whose stake has been halved from 51 to 25.5 per cent is learnt to be scouting for strategic partners for the airline he had founded more than 25 years ago. Abu Dhabi-based Etihad, which owned 24 per cent in Jet and now is left with 12 per cent, is expected to decide at a board meeting on Sunday, whether it wants to exit the airline completely or not.
Jet Airways Lenders considering open auction process
Lenders to cash-strapped Jet Airways plan to sell their stake in the airline through an open auction process over the next two months, seeking maximum value for the asset.
In the meantime, the consortium led by State Bank of India will provide emergency funding of around Rs 1,500 crore to bring operations back to normal, in phases. A senior executive of a large public sector bank said this is a transitory arrangement in which the lenders will acquire control, run the process of transparent bidding, and receive final bids by the end of April.
The bids will then be evaluated according to guidelines by the civil aviation ministry, following which a buyer will be selected. The outer limit for the process is May-end. Transfer of control to the buyer will be effected by June-end.
The resolution is being overseen under the framework of the Reserve Bank of India’s February 12, 2018 circular for dealing with stressed assets, which mandates the lenders to complete resolution within 180 days of default. In case of Jet, the 180-day period had begun from January 1, 2019.
The open auction process will be similar to what is followed under the National Company Law Tribunal, but will be outside the insolvency code and tribunal. It is being done in this manner given Jet is a service sector enterprise with little or no assets. If lenders take the NCLT route, the airline will be grounded with practically no chance of revival. The cases referred to NCLT have taken a long time for resolution, said one private banker.
Asked about the hit banks will have to take on exposure, a senior banker said: “The extent of write-downs we may have to take will become clear from the bids (price indicating expected haircuts) during the auction.”
During the two-month period, lenders will control the airline but will run it with the help of airline industry professionals and turnaround experts, backed by active oversight of the board of directors. Naresh Goyal and his nominees will exit the board.
Lenders said they would prefer to have an experienced banker as chairman of the board.
Banks will provide emergency funding of about Rs 1,500 crore to the airline and want it to return to 100 per cent operating capacity.
A large number of planes in Jet’s fleet have been grounded due to non-payment of lease rentals. Lenders (consortium members) are approaching the Union civil aviation ministry with a plea not to take away the airline’s landing rights, slots and traffic rights, as it is necessary for protecting the economic value of the enterprise and attracting bidders, the bankers added.
The government was toying with the idea of providing unused airport slots of Jet Airways to other domestic airlines on an interim basis, a senior civil aviation ministry official had said on Wednesday, with a view to minimise flight disruptions.
The ministry has also held interactions with representatives of carriers such as Air India, SpiceJet, GoAir and IndiGo, to discuss issues such as augmentation of fleet and utilisation of existing planes.
The domestic carriers will add 20-25 more planes by April-end. Jet Airways as an entity is still a good asset with a strong brand, and evokes huge investor interest, said a senior public sector bank executive.
The carrier’s international network and slots at key airports, too, are an attraction and lenders will be able to draw interest if they are successful in restoring the airline to its earlier strength.
“The airline has a well-balanced international network and serves all main markets from India, Hong Kong and Singapore in the east, several cities in West Asia, and London. Its partnership with Air France-KLM and Delta has enabled it to tap into Europe and North America and garner corporate traffic from those countries. The other key attraction is slots, especially at Mumbai airport, where it continues to be the dominant carrier,” said an aviation expert.
With the fund infusion, the airline will be able to partially clear dues on lease payments and then negotiate a fresh payment plan to get the fleet operational, said people in the know.
Jet’s Recovery Uncertain as Etihad Withdraws
The UAE flag carrier, Etihad Airways, which owns 24 per cent in Jet Airways and its board was considering a draft agreement as part of a debt- recast plan being mooted by the airline’s lenders led by State Bank of India (SBI).
Today, the stand of Abu Dhabi-based Etihad Airways became clear:
It would quit the talks for resolving the Jet Airways debt crisis and
It would like to sell its stake in Jet Airways
Etihad Airways had picked up its stake in Jet Airways in 2013 valued at around Rs 2,060 crore at that time. As the news of the Etihad stand spread. Jet Airways shares slumped more than Rs 11 or nearly 5 per cent to close at Rs 218 on Wednesday. Thus, at the current market level, Etihad’s shareholding in Jet is worth about Rs 400 crore. Etihad has offered to sell its 24 per cent stake to the SBI at a discount of Rs 150 a share.
Etihad has also offered to sell its 50.1 per cent stake in Jet Privilege, estimated to be worth Rs 1,000 crore to the SBI .
Etihad pulls out of resolution plan
Etihad Airways itself is not going through a good phase. It had to cancel its orders with the Airbus. A March 15 Forbes magazine report says that Etihad reported another huge loss in a year. It flew 17.8 million passengers last year when compared to 18.6 million in 2017, and reported a loss of $1.28 billion in 2018. In comparison, Dubai-based Emirates reported a 4.3 per cent rise in passenger numbers to almost 58.5 million and 8.5 per cent rise in revenues to $25 billion with the profits more than doubling to $762 million.
Etihad was expected to put in further Rs 1,800 crore of equity in Jet Airways bringing its stake to 24.9 per cent. The lenders’ consortium led by the SBI was also expected to bring in Rs 1,000 crore by way of additional equity apart from converting the current debt into equity as agreed by the resolution plan that has received Jet shareholders’ nod.
But the talks between Etihad’s chief executive officer Tony Douglas and SBI chief Rajnish Kumar failed. It got stuck on two main issues: (a) reducing founder Naresh Goyal’s stake in the airline, removing him from the management, and (b) Etihad wanted the SBI to take over its liabilities as a guarantor for Jet Airways’ Rs 1,000 crore loan from HSBC Dubai. Jet has already defaulted on the repayment of this loan.
Jet Airways in free fall
As Etihad has withdrawn from the resolution plan, it has now become apparent that only a government intervention can rescue Jet Airways.
Jet Airways’ fleet of about 120 aircraft has already shrunken by more than 50% leading to drastically curtailed operations, a threat by its pilots to go on strike from April 1 for salary dues looms, its staff has already written to the government over non-payment of salaries. These have brought Jet Airways further into the red. Jet has been staring at bankruptcy with more flights getting cancelled every day as lessors ground aircraft over the payment defaults.
Jet Airways Monday defaulted on payment to its debenture-holders–the third default since January–even as airline chairman Naresh Goyal assured the employee of a resolution in the immediate possible time.
Banks may infuse funds into Jet Airways
Banks are likely to infuse fresh funds into cash-strapped Jet Airways if……there is a big IF.
It is whether major shareholders of the airline – Etihad and Founder Chairman Naresh Goyal- would like to pledge their shares as collateral security.
With Jet Airways unable to get fresh funds, the options are becoming limited now.
The Company is struggling with acute financial woes that has resulted in grounding of a significant number of planes, defaulting on debt and lease repayments and delay in payment of salaries to pilots and other senior officials.
Founder Chairman Naresh Goyal and his family owns around 52 per cent stake in Jet Airways while Etihad, a strategic partner, has 24 per cent shareholding.
A consortium of lenders, led by the State Bank of India (SBI), is working on a resolution plan for Jet Airways, which has a debt burden of more than Rs 8,200 crore.
Earlier, sources said that Goyal had agreed to pare down his holding to 22 per cent as part of securing a deal to bailout the airline.
Last week, a senior SBI official expressed hope that resolution should be finalised in a week or so.
On February 14, Jet Airways board approved a bank-led resolution plan whereby lenders would become the largest shareholders in the airline. Following approval from the shareholders, part of debt would be converted into 11.4 crore shares at a consideration of Re 1 apiece as per the RBI norms.
Since January, Jet Airways has defaulted thrice on payments to its debenture holders.
So far, the finance ministry has maintained arm’s length in the matter due to its commercial nature and creditors and debtors are working on the resolution plan, according to sources.
Jet Airways pilots look to join SpiceJet, IndiGo pilots see injustice
The harried pilots of crisis-ridden Jet Airways, which is on the brink of closing operations, have now approached SpiceJet as job seekers.
Jet Airways pilots had earlier been welcomed by IndiGo with compensation for their pending salaries and other advantages. IndiGo’s original pilots remained mute spectators. Eventually, they voiced their protest. In IndiGo, this led to murmurs of uneasiness within IndiGo’s pilots. IndiGo did purchase a number of additional airplanes, but it forgot to enhance its manpower especially in the critical areas, ie., operations and engineering where highly skilled personnel are needed. IndiGo became the largest airline in India but it faced acute shortage of labour because it had not done its homework well. As a thumb rule, at least two cadets could have been trained and groomed under one senior pro. Given the number of planes at its disposal, given the hours of flight it undertakes, IndiGo could have produced a battery of young pilots during the last ten years or so. Such a rich pool of talent could have served not only IndiGo but other airlines of the world too.
Although, shortage of manpower in non-critical areas can be somehow managed, shortage of cockpit crew is the one which can not be tolerated. This finally leads to cancellation of hundreds of flights. This has been IndiGo’s experience last month.
According to IndiGo, all job offers are in line with its current terms and conditions.
But IndiGo pilots differ. They have called the move as “injustice” and “unacceptable”:
IndiGo Management takes us lightly.
Offer to Jet Airways pilots is sheer injustice to us
Jet Airways pilots are being offered a two-month bonus along with same designation-salary
They have also been allowed to choose their operational base.
“The management is saying it is not bonus but it is compensation for their (Jet pilots) delayed salaries. Are we also not entitled to similar bonuses?” IndiGo pilots ask.
Also, Jet pilots are joining with designation protection. So, basically if a non-type-rated examiner is joining us, she/he will be joining with a pay protection of the IndiGo examiner, pointed out the IndiGo pilots.
Alleging that the IndiGo pilots have not been given a hike since the last three-four years, the pilots say that after joining, the Jet pilots will again get a hike when Indigo revises the salaries of its existing pilots.
Jet pilots along with engineers and senior management have not been paid for more than three months now as the airline is facing its worst existential crisis since its inception a quarter of a century ago. It can be noted that pilots at Jet, being a full-service carrier, get higher pay and other benefits.
The Gurugram-based SpiceJet, which has all its 12 Boeing Max planes grounded following the crash of an Ethiopian Airline plane early this month, is looking to hire pilots for its expansion plans, and has also conducted walk-in interviews here.
Unlike IndiGo, which flies majorly Airbus 320s, SpiceJet has Boeing 737s in the fleet. On the other hand it can be noted that majority Jet Airways pilots are trained and type-rated for Boeing planes.
With no assurance on the payment of their pending salaries, Jet pilots had Tuesday warned that they would stop flying from April 1 if the management failed to provide clarity on the revival plan along with a deadline to clear their salary dues by March 31.