- Lessors meet top executives of debt-laden Jet Airways, ask for payment plan
- Banks have already initiated steps for the resolution of stressed asset according to Reserve Bank of India norms.
India’s second-largest carrier, Jet Airways has repayment obligations of Rs 6,500 crore extending till March 2021, while its total debt stands at Rs 8,000 crore. Jet Airways defaulted on its loan principal and interest payments for the December-end quarter, its ICRA ratings promptly slipped to D from C. The cash-strapped airline has also defaulted on lease rent and other dues to lessors, maintenance repair firms and other vendors, several of whom have served notices on the airline.
Jet Airways lenders are unwilling to extend any additional credit to Jet Airways.
They will not release cash until they have a look at the forensic audit report by EY on Jet’s business viability. Jet, which seems to be surrounded in a debt trap, is under pressure to raise funds before it is classified as a non-performing asset (NPA).
Though, with its present business model its cash flows might never be enough to service the loans. Lenders, led by SBI, have three options to recover their dues.
The first option is for Jet’s founder-chairman Naresh Goyal to sell stake in the carrier before lenders initiate bankruptcy proceedings against it. Mr and Mrs Goyal own 51% in Jet, while Etihad holds 24%. Goyal has already talked with Etihad Airways for funds, but his Abu Dhabi partner seems reluctant to oblige. Etihad has seen that the Tatas also did not see any merit in Jet’s case. The Tata Group has also earlier considered an investment option in Jet, but they, too, retraced their steps when they saw Jet’s current liabilities. The impact of its mere news, however, was such that Jet’s shares became ridiculously bullish.
The second option for lenders is to initiate insolvency proceedings against Jet once the loan becomes an NPA. If a company doesn’t repay loans within 90 days, then it is categorised as an NPA, as under current rules.
The third option is to restructure the loans in agreement with the lenders. There are several challenges to loan restructuring. This will require Goyal to sell assets and cut costs. It will also require conversion of debt into equity as its income might not be enough to service the loans. The actual business viability will be known only after EY submits its forensic report, the lenders said. Bankers have clearly indicated that they earlier had a very bad experience with Kingfisher’s Mallaya. Fresh credit would be thus ruled out without completion of this process.
Currently, to ease its cash flow, Jet has been offering up to 50% discount on tickets to certain destinations for travel in the next few months.
PR at Jet Airways has also taken a hit. Its PR executives avoid meeting people, as a number of queries from the media, share holders, or the general public go unanswered.
In the wake of the Nirav Modi-led fraud at Punjab National Bank and the Rotomac fraud at Bank of Baroda, department of financial services secretary Rajiv Kumar had asked banks to conduct forensic audits in case of defaults of more than Rs 50 crore. The forensic audit at Jet by EY comes under the same directive. The RBI has also come out with guidelines for resolution of stressed assets. Under this, once a company defaults on its loan, lenders have to get together and agree on a resolution plan for the residual debt. This resolution plan has to be rated as viable by an independent credit rating agency before it can be approved.