Banks get ready to put in extra money in debt-laden Jet Airways

A day after Etihad walked out of the prolonged bank-led resolution plan for Jet Airways, lenders got into action to chalk out a plan B. Senior bank executives worked the phones and logged on to video-conferencing in a move to rescue Jet, which has a debt pile of about Rs 8,000 crore and is left with just half of its original fleet due to non-payment of dues to lessors.

Switching to a damage-control mode, bankers and government officials claimed that Jet Airways wouldn’t fall even if Etihad refuses to back the resolution plan and exits. Instead, lenders would infuse additional funds to keep Jet flying, they said. An option that was discussed was that Etihad and Jet Chairman Naresh Goyal, who owns 51 per cent in the airline, could pledge their shares and, in return, lenders would put in more funds.

The move comes after Etihad told SBI, which leads the consortium of lenders proposing a resolution plan for Jet, that it would like to exit the airline and sell its 24 per cent stake in Jet and 50.1 per cent in Jet Privilege to them.

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Etihad is also learnt to have asked the SBI to take over the guarantee on the $140-million ECB loan, which Jet had taken from HSBC. Etihad had stood guarantee for the loan, which is coming up for repayment on March 27. Etihad CEO Tony Douglas is also believed to have indicated that the company was willing to sell its stake in Jet to the banks at a discounted price of Rs 150 a share or at Rs 400 crore. It has also valued its equity holding in JPPL at around $600 million. An e mail query to Etihad did not elicit any response.

Despite the brave front put up by bankers and government officials trying to prevent an airline collapse so close to the Lok Sabha elections, the lenders’ meeting called at a short notice on Tuesday evening remained inconclusive. The discussion was all about who will pitch in with what in the suddenly changed scenario. With no consensus yet on how the additional burden would be shared by the lenders, another round of talks has been planned with the top management of banks. ‘’It’s a wait and watch situation and the picture would become clear in two days,’’ a source tracking the developments said.

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A top government representative pointed out that while lenders would ideally want Jet and Etihad to put in more money, the largest state-owned lenders like SBI and Punjab National Bank could also infuse more. “The lenders have the option of pumping in money on behalf of the stakeholders if the latter pledge their shares,” he said. He added that the government was in favour of an Indian entity holding majority stake in Jet Airways. “Ideally, nobody would like Jet Airways to go into insolvency proceedings,”he said.

Banks, another source said, had held a meeting late evening on Monday too, to discuss ways to salvage the resolution plan. The lenders had earlier agreed that they would provide Rs 750 crore as interim financing and Rs 1,000 crore for fresh equity to revive Jet.

ALSO READ: Jet Airways pilots seek Centre’s help to recover unpaid salaries

As per the resolution plan, Goyal’s stake was to go down to 17.1 per cent from 51 per cent now. At present, only 1.5 per cent of Goyal’s shares are pledged and Jet has an agreement with PNB under which it has to take a no-objection certificate to sell its shares.

On its part, Etihad has been unwilling to pledge its shares from the very beginning. That’s the reason why Etihad’s draft memorandum of understanding with Goyal had put in a clause that the Abu Dhabi airline would not give any corporate guarantee or pledge its shares in Jet or JPPL. Also, it was again Jet which would pledge its remaining shares in JPPL to secure the $140 million loan from HSBC.

SBI not able to finalise resolution plan for Jet Airways after 75 days

Since 31st December 2018, Jet Airways has not paid its debt. Its lenders are trying the debt-equity turnaround plan for the last 75 days or so. Interest, as usual, kept on increasing every day, Jet could not earn adequately as lessors repossessed their planes. The situation has moved from bad to worse.

Amidst increasing differences between Jet Airways and Etihad Airways, the only party that can bailout the beleaguered airline, over the equity cap that its founder chairman Naresh Goyal can hold after his forced exit, bankers on Friday exuded confidence of reaching a resolution plan as early as next week.

After agreeing to cap his shareholding at 22 per cent for perpetuity and completely exit the airline’s management as a precondition for a bailout that Etihad and bankers demanded, Goyal had last Friday wrote to Etihad to remove the perpetuity clause from the resolution plan and also the Gulf carrier immediately offer a lifeline of Rs 750 crore failing which the airline may get grounded.

This, according to media reports, has put off the Gulf carrier which already owns 24 per cent in the airline which has grounded 42 per cent of its 119 aircraft, most of them due to non-payment lease rentals to the aircraft lessors.

According to the draft resolution plan submitted to the lenders led by the lead lender SBI, Etihad will bring in around Rs 1,800 crore as fresh equity and increases its stake to 24.9 per cent, while Goyal will chip in with Rs 750 crore and the rest of the Rs 3,800 crore come from other investors.

Founder chairman Goyal and his family own 52 per cent in the airline now which he had agreed to pare down to 22 per cent to secure a financial bailout.

“It is a work in progress. Very soon, say by next week, we will have a solution plan in place,” a senior SBI official said here Friday.

The official said the resolution plans had started on November 1 last. “Any resolution plan for a corporate is a very complex process. Things don’t happen in a day or two or in even 15 days.

“There are various stakeholders, who have to be aligned; there are promoters and joint venture partners, so when the situation is so complex, it takes time,” SBI explained the reason for the delay.

“We are making every effort and SBI is leading that effort. We are clear on one thing: to ensure that the airline runs and not get grounded and not to stave off our accounts becoming NPAs. That’s the fundamental difference between any other NPA and Jet Airways,” he added.

Jet has a debt of over Rs 8,200 crore and needs to make repayments of up to Rs 1,700 crore by the end of March. It has already defaulted on an ECB payment earlier this week but is servicing its domestic debt.

The acute liquidity crunch has forced it to ground aircraft, shut down stations and delay salary payments to its pilots and engineers along with other senior staff. Since last July the airline has been trying to raise funds as cash crunch mounted leading to salary delays since then.

On March 8, Goyal wrote to Etihad chief executive Tony Douglas seeking an urgent funding of Rs 750 crore under an agreement signed between various stakeholders.

On 14 February, 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.

Jet Airways pilots seek Centre’s help to recover unpaid salaries

New Delhi: Cash-strapped carrier Jet Airways’ pilots union has for the first time sought the government’s help to recover pending salaries and dues from the airline after their pleas to the management have fallen on “deaf ears.”

jet airways pilot
Help, I am not getting my wages

In a letter to Labour Minister Santosh Gangwar, National Aviators Guild, which represents the majority of Jet’s pilots, has asked that the airline immediately pay their outstanding salaries and allowances till date with interest.

“This situation is leading to extreme tension and frustration amongst our members, hardly an ideal situation for pilots in cockpit,” captain Karan Arora, president of the union, said in the letter dated March 6, seen by news agency Reuters.

Jet has delayed payments to its pilots, suppliers and lessors for months and defaulted on loans after racking up over USD 1 billion in debt. The airline is in talks with state-backed banks for a rescue deal and emergency funds.

The pilots in August were given a staggered schedule of payments for salaries but Jet has not kept up, the union said, adding the airline still owes the pilots most of the salary for December, and all of January and February.

Jet did not immediately respond to a request for comment.

Also Read28 Jet Airways planes Grounded so far

Jet Airways flight suffers bird hit before landing in Mumbai

A Jet Airways spokesperson told media that Jet Airways flight 9W 913 had reported a bird strike during a thorough inspection. 

Passengers onboard a Jet Airways flight travelling from Ahmedabad on Friday had a narrow escape after the aircraft suffered a bird hit minutes before landing at Mumbai’s Chhatrapati Shivaji International Airport. The aircraft was later changed for its onward journey to Dubai.

“The aircraft was changed for its onward journey to Dubai,” the airline official said. The plane is currently under maintenance, the official added.

“At Jet Airways, safety is of paramount importance to its guests and crew and the airline regrets any inconvenience caused,” the spokesperson said.

Last week, a GoAir flight from Patna to the national capital had made an emergency landing at Lucknow airport after a bird hit the plane before landing.

Will it be prudent for Jet’s promoters to put in Rs 750 crore further?

Jet Airways was founded by Naresh Goyal 25 years ago and is currently 51% owned by him.  24% of its stake is  held by the Abu Dhabi based Etihad Airways. Till September 2018, the airline operated 124 planes, of which 16 were owned and the rest were taken on lease. As per Jet Airways website, the airline has 119 aircraft in its fleet. However, only 70 are currently operational. The remaining 49 aircraft are grounded and the airline has been told to ensure that passengers do not suffer because of flight cancellations resulting from this situation, as per the Directorate General of Civil Aviation.

Lessors take action on Jet Airways every other day. At least seven of them have claimed pending payments for leasing and maintenance reserves since October. As the deadline draws near—around the end of 2019—when Jet Airways may file for bankruptcy, lessors will like to get their aircraft out of India in time.

India’s Jet Airways is seriously embroiled in a quagmire of debt and losses resulting in the grounding of its aircraft fleet and the cancellation of some 200 flights a day. The revenues continue to slump while the costs increase; the gap is getting progressively wider.

Jet Airways owes more than $300 million to government-owned State Bank of India (SBI). The airline has overall Rs 8,000 crore of debt outstanding and a current market capitalisation of Rs 2,766 crore. Over Rs 2,500 crore of loans are coming up for repayment in FY20 and currently the airline is not earning enough cash to feed itself.

In banking business, lenders do not want to be shareholders in their borrowers’ ventures, because they have little knowledge of their business. In case of Jet Airways. they, however, agreed to a debt conversion.  As per the comprehensive resolution plan, lenders will convert part of their debt into equity with a 49% stake in the airline.

The buzz in aviation industry is: ‘Keeping Jet flying is crucial for lenders because apart from collecting advance money through future ticket sales, there is no way for them to recover their loans. Lenders have thus no choice but to convert debt into equity.’

SBI and Punjab National Bank (PNB) will bring in Rs 500 crore as an emergency infusion, subject to other lenders agreeing to the two banks being allowed to take out their money first. There is another condition: the airline owners (Goyal and Etihad) must bring in another Rs 750 crore as contribution of the promoter.

The airline faces a bleak future.

Today, the Jet Airways situation is so critical that ’emergency financing’ is needed desperately to keep Jet’s planes in the air and to re-induct aircraft that have been grounded for lease-payment defaults or for want of spares.

Jet Airways could get emergency funding if the promoters agree to bring in Rs 750 crore. Etihad could help Goyal further if he agrees to step down from his management control.

To lend further some reassurance, the International Air Transport Association (IATA) earlier this year has said that it is carefully watching the Jet Airways situation as the airline is on its billing settlement plan.

“Jet Airways continues to be of good standing in the IATA settlement systems,” IATA official Albert Tjoeng told media. “We are in regular communication with the airline to review their position.”

Lifeline for Jet Airways only after promoters put in Rs 750 crore

Jet Airways’ future, thus, hinges on bank debt settlement. More specifically, it is on the Rs 750 crore that Goyal and Etihad are supposed to bring.

In business circles the buzz is: ‘Even after putting in further Rs 1000 + Rs 750 crores in Jet Airways, there is no guarantee that the airline will start earning profitably. First and foremost, it has a mountain of liabilities to clear presently lying as backlog. With a Rs 750 crore in hand, an investor has a wide range of other  investment choices. To put money further in Jet Airways will surely not make a prudent business sense.’

As such, the lenders should now see on ways and means to salvage their money by liquidating Jet’s visible movable and immovable assets. After two months since December, the lenders could only manage to draw a plan which is non-workable. While Jet Airways kept losing one plane after another to its lessors, the lenders just wasted their rime, money and resources.

While the lessors can predict Jet Airways go bankrupt by 2019 end, the lenders did not like to spare a thought on it. They exercised on something else and wasted two full months.  They should have started salvage proceedings immediately after December 2018 because that, too, takes its own time. With every passing minute, Jet’s assets’ value is diminishing with no signs of any recovery or addition in near future.

The on-lookers have now become accustomed to the news of Jet’s flights getting cancelled, its planes being repossessed. Airline all over the world are closing their shops one after another. Some of them have filed for insolvency. In February 2019, 99 airplane orders with Airbus were cancelled. Jet’s Etihad was one of the airlines which refused to accept Airbus deliveries. One day, no wonder, Airbus will also meet a similar fate.

The experienced lenders must have seen the writing on the wall. They must have understood the nature of aviation business wherein making a reasonable profit which could justify the investment is ruled out, paying interest and debt are beyond its means.

Today, a stage has reached for Jet Airways from where it is destined to go into the annals of aviation history as another failed story.

28 Jet Airways planes Grounded so far


FLY Leasing Ltd has grounded three planes on lease to India’s Jet Airways Ltd and will take them back and redeploy them elsewhere if the airline cannot gain approvals for a restructuring plan this month, the lessor’s CEO said.

Jet Airways on Thursday said another three aircraft had been grounded due to its failure to make payments, taking the total number to 28, but it has not specified the lessors involved.

Also Read: Jet Airways : Way for lenders to infuse funds and nominate directors cleared

The grounding of almost 25% of Jet’s fleet has resulted in the cancellation of hundreds of flights and complaints from customers on social media.

Several major global aircraft leasing companies, like AerCap Holdings NV and BOC Aviation have leased planes to Jet Airways which is currently facing a number of financial woes. It has defaulted on lease payments which has not gone well with the lessors. It is simply not in a position to pay the loans and has not even paid salaries to its staff including pilots. Even it owes huge sums of money to its suppliers for months.

“We have grounded our aircraft, we have control over our aircraft, but we have not terminated the leases and we are waiting for the airline to approve all its restructuring with the State Bank of India,” FLY Leasing CEO Colm Barrington told analysts on a results call on Thursday.

“If that goes through at the end of the month, obviously, we will stay with Jet. If they can’t get that done, then we’ll take our aircraft back and redeploy.”

Jet Airways had three relatively young Boeing Co 737-800s on lease which accounted for almost 3 percent of lessor FLY Leasing’s revenue.

Jet Airways has outlined a draft to sell a majority stake to a consortium led by the State Bank of India at 1 rupee, under regulations that permit banks to convert debt to equity in a defaulting firm.

The stake sale will be followed by an equity raising, debt restructuring and the sale and leaseback of jets to help plug a $1.2 billion funding gap, but the plan needs approvals from several stakeholders, including major shareholder Etihad Airways.