Jet Airways defaults on lease rentals, receives notice from AAI on dues

Jet Airways has defaulted on payments to aircraft lessors and has been served show cause notice by the Airports Authority of India (AAI) for payment delays.

Lessors have also served notices for payment default and indications are the airline may return five-seven of its older Boeing 737 planes to resolve the dispute, said sources.

The airline has 124 planes in its fleet, which is a mix of ATRs, Airbus, and Boeing jets, and 108 of them are on lease. It is not known with how many leases a default has occurred.

“Jet Airways is making partial payments to its lessors and has promised them it will settle all dues. In such disputes, lessors can take steps to repossess planes, but that depends upon its relation with the airline and the external demand for aircraft. The lessor should be able to place the aircraft with another airline and that is not always possible at short notice,” said an aviation expert.

Jet Airways has inducted five Boeing 737 MAX planes in the last four months and will add six more till end-March. Source say there could be a lag between the phase-out of planes and new deliveries, and hence, the airline has not submitted its entire winter schedule. 

The financial crisis at Jet is leading to delays in salaries and payments to vendors and has cast uncertainty about the scale of its operations in coming weeks. The airline has a schedule of over 650 daily flights at present.

The AAI has sent a show cause letter to Jet Airways as the airline has not made its full payments for September and October. The delay in payment has increased the risk of erosion of the airline’s security deposit with the airport operator. “We have sent a notice to Jet Airways to make its full monthly payment. However, the backlog in payment has still not exceeded the security deposit,” said a senior AAI official.

However, an airline spokesperson insisted the airline has not defaulted on payment to the AAI. “Jet Airways is actively engaged with all its partners, including lessors, providing them updates on the various efforts being undertaken by the company to improve its liquidity. Our partners understand the challenges being faced by the domestic aviation industry and have been supportive of the airline’s efforts,” the spokesperson said.

“The airline is absolutely current with its payments towards the AAI and your conjectural interpretation is speculative and misleading. Jet Airways and its various employee bodies, including those of its pilots, continue to work closely together and stand committed to support the ongoing turnaround of the airline,” he added.

Spokespersons from aircraft lessor GE Capital Aviation Services and Dubai Aerospace Enterprise said they will not comment on confidential information regarding customers.

These developments come as the airline is scouting for funds from lenders and investors. Discussions are on with strategic partner Etihad Airways for fresh funds to tide over the cash shortage. Preliminary talks have been held with Tata group for a stake sale. 

The onset of the busy holiday season is seen as a positive and will help increase cash flow for the airline, say sources, pointing to an increase in average fares in the third quarter over the preceding one. 

Despite an improvement in pricing scenario and a possible fall in crude oil price, analysts have, however, estimated the airline needs an urgent funding of at least $1 billion. “The current stress in Indian aviation is cyclical and reverse, but Jet Airways is poised with significant challenges, which pose insolvency risk, pending clarity on availability on funding,” ICICI Securities noted in a research report.

NOT A SMOOTH LANDING
 

• Jet Airways has defaulted on payment to aircraft lessors 
• AAI has served show cause notice to Jet Airways for delay in payment of landing charge
• Jet Airways is scouring the market for funding, has had discussions with Tata group
• Analysts estimate an urgent requirement of $1 billion funding for Jet Airways