Lessors of the cash-strapped Jet Airways have started grounding Jet Airways’ aircraft over mounting dues. This has an adverse effect on the airline’s schedule.
Jet’s nightmare haunts Jet. Lessors want their planes back; lenders may soon also begin their recovery process. Jet’s management wants to raise funds, but it is simply not able to earn money on its own. The debts and interest thereon are mounting with every passing minute. And above all, its resources are shrinking. With every passing day, Naresh Goyal’s movable and immovable assets get wiped out, while liabilities continue to mount. Such a situation for any normal business man is the least welcome.
This event has brought back memories of the Kingfisher story, where similar developments eventually led to the Vijay Mallya-owned airline to its collapse.
However, observers say in the case of Jet Airways the situation is slightly different. Jet Airways may raise money it desperately needs. It has called for an extraordinary general meeting on February 21 to convert its debt into equity.
The airline follows a sale and lease model, where it sells new aircraft to lessors before leasing them back. Of its fleet of 124 aircraft, the airline owns 16. It had planned to sell these 16 aircraft to raise at least $500 million. But the plan did not move forward because the lessors and the owners differ over aircraft valuation. Now, the lessors dictate terms.
The inability to sell the aircraft had worsened the airline’s liquidity crunch, and it defaulted on loan repayments on December 31, 2018. The company, which has debts of over Rs 8,000 crore, now needs to repay about Rs 1,700 crore by March.
Given the situation now – 5 airplanes being taken back will further lead to much lower yields. When lessors repossess their aircraft and flights get cancelled, then these have a highly severe impact on the airline’s revenue generation ability. To earn Rs 1,701 crore by March remains a distant dream. Hereinafter, Jet Airways will find very difficult to manage its day-to-day operations. Lease, debt or interest repayment shall persist forever.
This is precisely what happened with Kingfisher Airlines. It was deeply immersed in huge losses and a debts which remain unresolved till date. The airline was forced to ground aircraft, cancel flights and then close down operations in cities. Its owner fled the country.
The Jet Airways management is now depending on the outcome at the EGM which is still 22 days away. Apart from turning debt into equity, it also wants to increase its authorised share capital.
These will consequently lead to dilution of stakes held by Naresh Goyal, and Etihad Airways, which owns 51 percent and 24 percent in Jet Airways, respectively. Both have promised to put in money. This, in other words, means both Etihad and Goyal did not earn anything in the last 25 years. Observers believe that putting further money in Jet is like sprinkling drops of water on hot dry sand.
The lender, led by State Bank of India, will get a stronger hold on the company. Reports suggest that SBI will acquire significant stake after shareholder nod.
The new owners will also like to rethink their decision on Jet. After 25 years, Jet’s Naresh Goyal is again going to put further $700 million or so. If Goyal couldn’t succeed in his venture, then there is no assurance that the new owners – SBI, Etihad – can make any money out of Jet Airways.
Goyal, too, may give his decision to put more money on Jet a rethink. If he invests the same money somewhere else, he may earn more than Jet!!!
Also Read: Indian Airlines Still Bleeding
Despite the fact that there is a robust increase in the number of air passengers, the Airlines are running in losses which is unbelievable. What more do the Airlines want from the public to make it profitable ? If things continue in this manner, the airlines will never be able to come out of the red.