The lenders of debt-laden Jet Airways Ltd’s, India’s biggest full-service carrier by market share, have proposed a $900 million resolution plan, as per media reports on Wednesday. The resolution plan was shared with the airline’s lessors and vendors at a meeting chaired by State Bank of India and attended by the airline’s senior management, including chairman Naresh Goyal and a representative of Etihad Airways PJSC.
Jet Airways, has been facing severe financial turbulence for a while.
The situation worsened in 2018 solely due to short sighted outlook on the part of its management. It reported three consecutive quarterly losses of over ₹1,000 crore each since the quarter ended March 2018. The woes of Jet came out fully in public domain when in August its Chairman said that only 60 days are left for its survival. At the time of mandatory filing at the stock exchanges in December, Jet Airways stated that it could not pay the debt to its lenders. ICRA swiftly downgraded Jet to D ratings.
Between August and December Jet Airways also defaulted routinely on payments to its staff, vendors, and lessors. A number of pink slips were also shown. A number of its flights were cancelled due to either pilot or plane shortage. A number of its planes stayed grounded at Delhi, Mumbai and Chennai either due to major maintenance checks or due to inability to procure spares. Jet Airways even had to withdraw its services from the lucrative Gulf routes. All such factors resulted in a massive revenue loss, which analysts believe that even the owners are scared to compute. Making a profit, paying interest to the lender, or paying lease to the lessors are thus completely ruled out.
The Jet Airways management did not utilise its resources optimally but kept blaming rising oil prices, rupee depreciation and intense pricing competition in the Indian skies.
Jet Airways did talk with potential investors to raise fresh equity, but nobody came forward. It unsuccessfully explored various fundraising options such as a stake sale in its loyalty programme, Jet Privilege Pvt. Ltd, or a stake sale in the airline to the Tata group. The Tatas later withdrew their proposals when they saw Jet’s liabilities were beyond feasible repair.
Against such a gloomy backdrop, and despite the fact that Jet Airways did not pay any dividend to its loyal shareholders in 2018, the lenders of Jet Airways are anticipating that they can recover their debt. They have come up with a plan which is best described as – “Pay an existing Loan by availing another Loan”. They have just named it as a ‘resolution plan.’ Every business community in India and the world knows very well that this is the recipe for disaster.
According to estimates, Jet Airways needs nearly $500 million between now and April to meet repayment obligations and manage operating expenses.
As per the resolution plan, Naresh Goyal and Etihad Airways are likely to infuse $450 million together in Jet Airways, while Indian lenders will restructure another $450 million of its debt.
The lenders did not suggest any means to raise revenue earning opportunities, while doing so, but they expect Jet Airways will start earning profitably.
If the said plan is approved by all stakeholders, it will trigger a change in Jet Airways’ shareholding. It will result in Naresh Goyal’s stake falling below the current 51 per cent. There is a possibility that Naresh Goyal may cede operational control of Jet Airways to its partner, the Abu Dhabi based Etihad Airways, which can increase its stake to 49% under current regulations.
The final plan will be put in place by the end of January and the lenders are hopeful that the resolution plan will be in force by 31 March this year, which is well before the 180-day period under the Reserve Bank of India’s (RBI’s) 12 February circular.
As part of the restructuring, the lenders have also proposed a moratorium on repayments on loan facilities which are due till April. The lenders have also assured Jet Airways’ vendors and lessors that their dues will be cleared in three tranches till April, by which time the lenders expect Jet Airways to start earning profitably.
While the finer details are still being worked upon, the broader contours suggest that it took only 25 years for 70-year old Naresh Goyal to see this day: Erosion of his hard earned wealth. Dilution of his control over Jet he had founded. Whatever he or his company earns hereinafter, he does so for the sake of his lenders!