Rs900 million turnaround plan for Jet Airways

Domestic lenders led by State Bank of India (SBI) have proposed a $900-million resolution plan, comprising fresh equity infusion and restructuring of $450 million of its loans.

The consortium of banks on January 8 met Jet Airways’ officials, including founder and Chairman Naresh Goyal and a representative of Etihad Airways, which holds a 24 percent stake in the airline, to discuss its financial state.

If the stakeholders approve the proposed turnaround plan, Goyal may have to dilute his stake from the existing 51 percent. Lenders are of the view that Goyal must step down from Jet Airways’ board, however he could continue to be associated with the airline in a non-executive capacity.

“The conversation is around reducing Goyal’s say in operating the airline,” a source told the paper. As per the report, Goyal’s stake may be halved and SBI would hold over 20 percent stake in the airline.

Media reports suggest that one of Goyal’s family members could replace him on the board.

“While the finer details are still being worked upon, the broader contours entail that Goyal and Etihad will together infuse $450 million in the company, while the Indian lenders will restructure another $450 million of the airline’s debt, which is up for maturity between now and March,” a source told Mint.

The final plan is said to be put in place by January end and lenders are hopeful that the resolution plan will be in force by March 31, which is well within the 180-day period set by Reserve Bank of India’s (RBI) in its February 12 circular.

Lenders, however, will not release cash until they have a look at the forensic audit report by EY on Jet Airways’ business viability, according to a report. SBI has appointed EY to conduct a forensic audit into Jet Airways’ books from April 1, 2014, to March 31, 2018. The process is underway.

“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 the payment cycle to become regular,” another source told Mint, adding that as part of the restructuring, lenders have also proposed a moratorium on repayments on loan facilities which are due till April.

Etihad Airways is said to have offered to guarantee loans worth $150 million for Jet Airways to keep the airline operational. According to estimates, it needs close to $500 million between now and April to meet repayment obligations and manage operating expenses.

The airline defaulted on a debt payment to a consortium of banks led by SBI on January 1. It reported three consecutive quarterly losses of over Rs 1,000 crore each since the quarter ended March 2018.

Jet Airways has been planning to raise money from the market to repay debt and fund its operations.

In September 2018, the airline had informed its overseas lenders that it would raise about Rs 3,500 crore over six months through a stake sale in its loyalty programme — Jet Privilege — and infuse fresh funds into the company. However, the airline is yet to find fresh funds or monetise its stake in its loyalty programme.

Jet Airways has been undertaking cost-cutting measures such as shutting services on unviable routes and moving towards a no-frills airline by stopping free meals. The management had earlier said it intends to cut its operating cost by Rs 2,000 crore over the next two years. These measures may, however, take a few more quarters to bear significant results.