NEW DELHI: The long awaited Monday Morning News Headline is finally out :
Jet Airways Bailed Out
Jet Airways, while celebrating its 25th anniversary, did not experience anything rosy. It could not pay salaries to its staff, it defaulted on lease payments, could not pay the debt and interest on time. Its planes were repossessed by its lessors, it had to cancel flights.
The Mumbai-based private carrier, majorly owned by businessman Naresh Goyal, has reported three back-to-back quarterly losses this year, resulting in severe cash paucity and subsequent payment issues with its staff, lenders, lessors and vendors.
It is yet to evolve as a professionally managed airline. It has rarely come up with any innovation that could make it self sufficient.
However, Jet Airways just got a lease of life. Its lenders agree to restructure its debt.
Lenders of the debt-laden Airline, Jet Airways, have proposed to convert debt to equity at Re 1 and provide emergency funding. Conversion of lenders’ debt into 11.4 crore shares of Rs 10 each by allotment of such number of equity shares to the lenders would result in the lenders becoming the largest shareholders in the company.
Restructured Jet Airways will effectively be 51% government fund and PSU banks-owned. Sources say SBI-led lenders will convert Rs 600 crore loan into equity at Re 1, which will take their stake to 32%.
After this restructuring, the stake of Chairman Naresh Goyal will become 20% from 51%. He will lose managerial control and board seat. However, he will remain the promoter. It was he who had founded Jet Airways 25 years ago. Goyal’s penchant for control earlier used to be a major obstacle as the airline tried to negotiate rescue deals.
Goyal, if he so desires, may regain his lost shares provided he invests more in his company and clear the dues of the lender.
Naresh Goyal’s partner, the Abu Dhabi-based Etihad, which currently has 24% stake in Jet Airways, will invest another Rs 1400 crore, limiting its stake at 24.9% and avoiding an open offer. Etihad is expected to pick up the additional equity at Rs 150 per share.
Incidentally, the Abu Dhabi Investment Authority is one of the investors in NIIF, which was set up for building infrastructure but is now bailing out the airline. Jet’s remaining debt of Rs 6,000 crore will be restructured and converted into long term 10-year debt.
In other words, the ownership of Jet Airways will shift from the borrower to the lender. The borrowers – Naresh Goyal and Etihad – have to put in more margins.
Lenders become owners. SBI is the biggest PSU bank in India. It made its value through financial dealings, it has till date no experience of operating an airline. Earlier, it had a bitter experience with Kingfisher. SBI has taken over a company which has reported three back-to-back huge quarterly losses this year, plane repossession by the lessors resulting in severe cash paucity. In other words, Jet Airways has been a mountain of liabilities, its owners could not run it into profits despite their best efforts.
National Investment and Infrastructure Fund (NIIF), an investor-owned fund manager anchored by the government of India, will pick up 19.5% and invest Rs 1,400 crore, they add. Collectively, this will mean 51.5% control with PSU banks and NIIF.
Comments from Jet Airways are awaited.
The Jet board had last Thursday cleared a “bank-led provisional resolution plan” (BLPRP) which will see SBI-led lender banks becoming its largest stakeholder after debt restructuring. Under this plan, Jet will see restructuring to meet a funding gap of nearly Rs 8,500 crore, including proposed repayment of Rs 1,700-crore aircraft debt, through steps like conversion of debt to equity, equity infusion and asset monetisation.