Lenders To Jet Airways Set 2- Week Deadline For Reviving

Lenders to Jet Airways are likely to take a final decision on the future of the airline within the next two weeks as thwy look for a new domoestic investor, before opting for the last option of a bankruptcy filing.

With Etihad Airways willing to invest just enough to maintain its shareholding of 24% and the National Infrastructure Investment Fund (NIIF) ready to commit only if a new investor enters, the lenders have initiated the search for a third investor, two people familiar with the matter said.

According to the people cited above, who spoke on the condition of anonymity, lenders are yet to receive a formal offer from the Hinduja Group, which had recently expressed interest in investing in the airline. The London-based group has not yet approached lenders led by State Bank of India (SBI), these people said, adding that there is a possibility of the group making an offer in the coming days.

“Lenders have, meanwhile, agreed to take a significant haircut if the situation so warrants in the coming days. Any new investor is expected to seek anywhere between 80% to 90% haircut from the banks,” the first of the two people cited above said.

On 21 May, the Hinduja Group had said that it was considering a bid for Jet Airways, which has been grounded for more than a month. While there have been reports which said that the group had begun discussions with Jet’s existing investor, Etihad, for a joint bid, it is yet to make a formal offer or start the due diligence process as per usual practice.

If all else fails, a final solution could include referring Jet Airways to the National Company Law Tribunal for bankruptcy proceedings. However, under the bankruptcy resolution process, lenders may recover only a fraction of the ₹8,400 crore the airline owes them.

Currently, founder Naresh Goyal holds close to 51% in Jet Airways, while the rest is held by public shareholders, including Etihad. Once banks convert the airline’s debt into equity, Goyal’s stake will reduce from 51% to around 25%, while that of Etihad will fall to 12% from 24%.

“In the new scheme of things, envisaged with the participation of new investors, Goyal’s stake will finally fall to less than 10% which will reduce him to an ordinary shareholder,” said the second person cited above.

Under foreign direct investment regulations, a foreign airline can hold a maximum stake of 49% in an Indian airline, with majority control resting with an Indian partner.

While Etihad has evinced interest in rescuing Jet Airways, it has refused to increase its stake from the current levels after banks convert debt to equity at ₹1 per share. “However, the banks do not want to end up as the controlling shareholder,” said the second person cited above. “They (lenders) will be comfortable with a stake of around 30-35% depending on the final equity infusion by other partners. Meanwhile, NIIF, which, too, has shown interest in investing in Jet, has indicated that it will not be willing to own more than 20% in a revived Jet Airways, with the overall value of its investment not exceeding ₹1,400 crore.”

NIIF’s investment, however, is subject to lenders finding a third partner. Etihad, similarly, has said that it cannot be expected to be the sole investor, and that, among other requirements, additional suitable investors would need to provide the majority of Jet Airways’ required recapitalization.

Mint reported on 16 April that Etihad, NIIF and private equity firms TPG Capital and Indigo Partners had been shortlisted to place binding bids for Jet Airways.

Separately, a group of minority shareholders and frequent flyers of Jet Airways had reached out to SBI Capital Markets Ltd, which is running the bidding process, on 25 April to present a proposal to lenders for reviving the airline.

According to the bidding eligibility conditions, strategic bidders looking to invest in Jet Airways should have a minimum net worth of ₹1,000 crore or at least three years of experience in the aviation sector.

For financial investors, the qualifying conditions are minimum assets under management of ₹2,000 crore or at least ₹1,000 crore in committed funds for investment in Indian firms or assets.

Govt. To Investigate In Debt- ridden Jet Airways

The government said on Friday that it would investigate Jet Airways’ ability to continue flying as the debt- ridden carrier struggles for survival. 

The announcement comes after the airline cancelled a number of its international flights on Thursday and as lenders desperately seek a buyer to keep the beleaguered airline running.

A collapse would deal a blow to Prime Minister Natendra Modi’s pro-business reputation as Indians vote in a mega six-week-long election that started Thursday.

Aviation minister Suresh Prabhu tweeted that his ministry would “review issues related to Jet Airways” and “take necessary steps to minimise passenger inconvenience and ensure their safety”.

Jet was until recently India’s second-biggest airline by market share but is close to going under with debts of more than $1 billion.

The Mumbai-based carrier has been forced to ground the majority of its fleet after months of defaulting on loans and struggling to pay lessors and staff.

It told the Bombay Stock Exchange Thursday that it had grounded 10 more planes due to non-payment.

The airline is believed to now be operating just 16 planes out of a fleet of 119. That is below the 20 required by Indian aviation regulators to fly overseas.

Thousands of customers have been stranded in recent weeks after hundreds of flights were cancelled, in some cases with little or no notice.

All of Jet’s long-haul flights were cancelled on Thursday, including to London, Paris and Amsterdam. They were due to run later on Friday.

Thursday and Friday services to Colombo and Singapore were also cancelled.

Close of play Friday is the deadline for prospective bidders to express an interest in acquiring a 75-percent stake in the airline.

A consortium of lenders led by the State Bank of India started the stake sale process on Monday. Any interested parties will then have until April 30 to make a formal bid.

Several airlines, including Etihad, are interested in bidding according to reports.

The consortium took control of Jet Airways last month after creditors injected $218 million of “immediate funding support” as part of a debt resolution plan.

The deal saw founder Natesh Goyal step down as chairman.

Etihad Airways, which owns a 24-percent stake in Jet, has submitted an expression of interest to buy a controlling stake of up to 75 percent, according to Indian business dailies.

Goyal has also not given up hope of retaking control of the airline, papers say, although it is unclear that he would be able to put the necessary funds together.

Alarm bells for Jet Airways first rang in August when it failed to report its quarterly earnings or pay staff, including pilots. It later reported a loss of $85 million.

In February, it secured a $1.19 billion bailout from lenders to bridge a funding gap, but its crisis has deepened.

The carrier has been badly hit by fluctuating global crude prices and a weak rupee, as well as fierce competition from budget rivals.

Mismanagement has also plagued the airline with analysts tracing the start of Jet’s financial problems to its 2006 purchase of Air Sahara for $500 million in cash.

Goyal reportedly ignored the advice of associates who said the cost was too much.

Etihad, NIIF To Pour ₹3,800 Crore In Jet Airways, Naresh Goyal To Step Down

Etihad Airways and the National Investment and Infrastructure Fund (NIIF) will together put- in ₹4,000 crore into debt- ridden Jet Airways in a last- ditch effort to keep the airlines afloat. 

The company’s founder- chairman Naresh Goyal and his wife Anita will step down from the airline board and all executive positions. 

The bailout plan will see a conversion of lenders loans to equity and Jet Airways’ 51 per cent share in Jet Privilege will be pledged with them to raise fund. The financial daily has learnt that Jet’s new investor is expected to be NIIF.

Naresh Goyal may have to give up management control if the proposals are accepted, and it will provide Etihad and NIIF — which will inject Rs 1,900 crore each — a bigger role in the airline’s functioning. Of the total amount, the Abu-Dhabi-based airline will invest Rs 750 crore as interim funding. At present, Etihad has 24 per cent stake in Jet Airways.

It may be noted that Goyal has already injected Rs 250 crore into the company, and this along with an additional Rs 450 crore — towards liabilities of promoter groups — will be converted into equity shares. Goyal’s stake will drop to around 22 per cent while NIIF will get about 20 per cent in the troubled full service airline.

As per the report, the proposal laid emphasis on making Jet a board-run airline. People in the know told the daily that talks are on and the Jet founder-chairman is not giving in without a fight.

Naresh Goyal will immediately step down from the chairmanship of the loss-making carrier, and relinquish all executive roles. The 69-year-old tycoon would be designated as chairman emeritus (an honorary post) till 2025.

According to the draft proposal, Naresh Goyal will nominate two persons — other than himself and wife Anita — to the airline’s board.  Nivaan Goyal, his son, will be considered for an executive position in the company, the publication mentioned.

On Monday, Jet defaulted on the part-repayment of its external commercial borrowings because of a fund crunch.

Jet Airways Goes Through Fleet Crisis, Airlines Asked To Minimise Inconvenience To Passengers

Around 40 per cent of Jet Airways’ flights of 123 is grounded due to non-payment of lease rentals and lack of spares, said a senior official at the Directorate General of Civil Aviation (DGCA) said on Thursday. 

BS Bhullar, the director general DGCA said the aviation’s schedule is being monitored per month as its fleet count has been reduced to 70. 

 “Jet’s financial situation is well known. We are in constant touch with the airlines. We have told them to inform passengers about cancellations well in advance so that inconvenience is minimised,” Bhullar told reporters. He added that forward sales would not be banned as it can create a panic in the industry.

Cash-strapped Jet Airways had a fleet of 123 aircraft, including Airbus A330s and Boeing 737-800s, at the end of December 2018.

Jet Airways was forced to ground three more aircraft on Thursday due to non-payment of lease rentals, the airline said in an exchange filing. This has taken the total number of aircraft grounded on account of rental defaults to 28 including newly-introduced Boeing 737 Max. Other 25 aircraft are reportedly parked at different airports for want of service and spare as the full-service carrier faces its worst financial crisis.

According to DGCA sources, the airline has been compelled to cancel nearly 200 domestic flights every day, approximately a third of the daily schedule of 600 flights.

The beleaguered airline, which is looking for an investor to bail it out, is negotiating with lessors, the management said.

After announcing the grounding of four of its planes on February 7 for non-payment to lessors, the airline took another two aircraft out of operations due to similar reasons on February 23. On February 27 and 28, Jet Airways grounded seven and six aircraft, respectively, due to the non-payment of lease rentals. Later, two aircraft were grounded on March 1 and as many on March 2 and March 4.

According to sources, Jet’s equity partner Etihad Airways may be unwilling to infuse any funds in the interim in the cash-strapped carrier. The Abu Dhabi-based airline, which has a 24% stake in Jet, is believed to have decided to infuse funds only after the bank-led resolution plan (BLRP), which is being piloted by State Bank of India, is finalised and approved.

Meanwhile, Jet founder Naresh Goyal may be willing to step down as the chairman of the airline’s board. Since the BLRP’s finalisation and approval from all the stakeholders concerned will take time, the airline needs funds in the interim to pay its pilots, vendors and aircraft leasing firms.

As is known, the bank-led resolution plan includes infusion of funds, restructuring of debt and monetisation of assets. The BLRP has estimated a funding gap of around Rs 8,500 crore (including proposed repayment of aircraft debt of around Rs 1,700 crore) which will be met by an appropriate mix of equity infusion, debt restructuring, sale/sale and leaseback/refinancing of aircraft, among other things.

Once approved by all the required sections, lenders, led by SBI, will become the largest stakeholders in the airline. The stake of Goyal would come down to around 20-22% from the current 51%.

According to the monthly passenger data, Jet’s domestic passenger count was down 9% year-on-year during January while its market share fell to 11.9% – the lowest in at least five years – behind national carrier Air India’s 12.2%. 

Jet Airways Founder Likely To Lose Hold Of Its Airlines

The founder of Jet Airways, Naresh Goyal is likely to give up his majority stake in the airlines that he has captained for over 25 years.

In a filing to the stock exchanges on Feb. 14, Jet, which defaulted on its debt recently, announced that its board has given the green light to issue 114 million fresh shares of the company to a consortium of banks led by the State Bank of India (SBI). This essentially paves the way for the lenders to become the largest shareholders in the company.

The carrier, which owes the banks over Rs10,000 crore (around $1.5 billion), also announced its fourth consecutive quarterly loss yesterday (Feb.14). This has added urgency to the debt recast, which has long been in the making.

Back of the envelope calculations suggest that after the allotment of new shares to banks, they will end up owning a little over half of the airline, while Goyal’s shareholding will be reduced to 25% from the current 51%. Abu Dhabi-based Etihad Airways, which currently owns a 24% stake in Jet, may also see its ownership halve.

Though the contours of the new shareholding pattern are still hazy, Goyal can certainly not retain a majority stake in the proposed scheme of things.

The “bank-led provisional resolution plan” (BLRP), proposed by SBI, India’s largest bank, now requires approval from Jet’s other lenders, the Indian Bankers’ Association, and Etihad, among others, according to the filing. The airline has called for an extraordinary general meeting of its shareholders on Feb. 21, to seek their nod for the deal, which will help plug the airline’s funding gap of Rs8,500 crore.

As per the restructuring plan, banks will convert their debt in Jet into equity shares and become co-owners in the company. The plan also envisages fresh capital infusion and sale of assets, including aircraft, according to the Feb. 14 filing.

The package, if approved, will give Jet Airways the much-need oxygen it needs to stay alive.

No festive cheer

Despite being a seasonally strong quarter, due to year-end travel and the holiday season, Jet Airways posted a net loss of Rs588 crore in October-December 2018. In the same period a year ago, the airline had clocked a net profit of Rs165.2. Revenues, too, dipped from Rs6,086 crore in October-December 2017 to Rs6,148 crore in the last quarter.

“Higher costs due to the price of brent crude and the depreciated Indian rupee impacted the airline’s overall business performance,” Jet said in a statement. The double whammy offset a 2.6% increase in revenue per available seat kilometre in the quarter.

Yet, despite similar macroeconomic headwinds, Jet’s no-frills rivals IndiGo and SpiceJet—India’s largest and fourth-largest carriers by market share in 2018, respectively—managed to post modest profits during this period. Competition from budget carriers in a market known for its so-called “two-cent fares” has left Jet, a full-service carrier, financially vulnerable—it has often failed to pay employees their dues and grounded aircraft after delaying payments to lessors.

Investors have in turn punished the airline on the bourses. Jet Airways’ shares, which traded at Rs756 apiece on BSE a year ago, closed at Rs295 on Feb. 14 on BSE—a plunge of 61%.

The approval of SBI’s debt restructuring plan, therefore, is a much-needed balm for the carrier, even if, for the banks, the deal echoes their nightmarish experience with Kingfisher Airlines a few years ago.

Yet, the banks have no choice but to be proactive. On Dec. 31, last year, Jet for the first time defaulted on repayments to its lenders. As per the central bank’s norms declared on Feb.12, the default should show as a bad loan in the lenders’ books if repayment is not initiated within 90 days.

It may be time for Goyal to watch the banks run the show at his labour of love.