Lenders’ plan to keep Jet Airways' afloat may put Etihad in the cockpit


  • A consortium of creditors, led by the State Bank of India (SBI), have proposed a $900 million resolution plan for Jet Airways.
  • The plan involves a $450 million capital infusion by cash-poor Jet Airways and its partner Etihad, as well as the restructuring of $450 million worth of loans that are due by the end of March 2019.
  • This will likely involve the conversion of debt to an equity stake in the airline, diluting the stake of the Goyal promoters and could require a seemingly reluctant Etihad to take over operations.
After Jet Airways defaulted on a debt payment - incidentally, its first time doing so at the end of 2018 owing to a “temporary cash flow mismatch,” and was subsequently downgraded by ICRA, a ratings agency, the struggling airline’s creditors had no choice but to spring into action.

A consortium of creditors, led by the State Bank of India (SBI), have proffered a $900 million resolution plan for Jet Airways, according to Mint. The plan, which is subject to a vote, is two-pronged.

On one hand, it involves a $450 million capital infusion by cash-poor Jet Airways and its partner Etihad, which holds a 24% stake. On the other hand, the airline’s creditors have tentatively agreed to restructure and renegotiate $450 million worth of loans that are due by the end of March 2019.

This could involve the conversion of debt to an equity stake in the airline, diluting the stake of current shareholders and giving creditors like SBI a sizeable holding. As an additional provision, all debt repayments will be suspended until April 2019.

If the deal goes through, however, it will require the owners of Jet Airways and the Goyal family to give up majority control by reducing their 51% stake. The airline’s creditors are reportedly hoping to have the turnaround plan ready for implementation by the end of the current fiscal year. This is contingent on Jet Airways raising enough cash, be it through the sale of a stake in its loyalty programme, Jet Privilege, or the offloading of equity to another investor.

Concurrently, Jet Airways’ creditors have reportedly decided against extending any additional loans to the airline, at least until a forensic report on Jet’s finances is released by Ernst and Young, a consultancy. At the end of 2018, the airline requested SBI for a ₹15 billion stop-gap loan.

If Jet Airways is unable to clean up its act or commence the resolution plan, which is subject to a rating by credit agencies, it could very well be referred to the National Company Law Tribunal (NCLT) by its creditors. The NCLT is an extra-judicial authority set up under the Insolvency and Bankruptcy Code to facilitate resolution proceedings.

The Goyal family will do what it can to avoid this procedure as it favours liquidation and prioritises the preferences of major creditors. Hence, it seems more likely than not that the owners of Jet Airways will end up ceding operational control in the airline. In the absence of any serious buyer, the responsibility will ultimately fall on Etihad.

But does Etihad even want to step in? Jet has tried to secure a fresh investment from its partner but the talks have not yielded any result. It has, however, reported managed to get Etihad to guarantee any further loans.

After a turbulent few years, it seems to be a case of twice bitten, forever shy for the Emirati airline. Its partner airlines in Europe, AirBerlin, in which it holds a 29% stake, and Alitalia, in which it has a 49% holding, have both undergone bankruptcy proceedings, resulting in significant losses for Etihad.

One wonders then if the Emirati airline has the stomach for another risky investment in the form of a higher stake in Jet Airways.


SEE ALSO:

Jet Airways misses a loan repayment and gets downgraded again, further compromising owner Naresh Goyal’s plans to retain control of the airline

The owner of Jet Airways is reportedly trying to secure a rescue deal with partner Etihad to avoid losing control of his struggling airline
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