Lenders jittery over EY's negative report on cash-strapped Jet Airways

A negative report by audit firm EY on Jet Airways’ financials made Indian lenders jittery about pumping more money into the airline just before its collapse, last week.

The report is not a full-fledged forensic audit on the airline and has pointed out some discrepancies in the airline’s books, said a source close to the development. The report has not been made public yet, but has been submitted to the creditors.

Arvind Gupta, who complained to the Prime Minister’s Office (PMO) about Jet, said EY had looked into Jet’s books from FY14 to FY18 after lenders appointed the audit firm to probe the charges. “This is not enough. I have pointed out fund diversion from the airline for the past 10 years,” he said. The Ministry of Corporate Affairs (MCA) is inquiring into the airline’s books and Gupta has been called for giving more evidence.

An email sent to Jet Airways did not elicit any response. An EY spokesperson declined to comment.

Gupta said Naresh Goyal’s private entity — Jetair Pvt Ltd (JPL) — earned Rs 4 crore a month from the airline as a general sales agent for the airline and the private entity did not utilise any of its credit facilities from banks worth Rs 28 crore in its efforts to remain debt-free. As of December last year, the Goyal-owned firm had cash and cash equivalents of Rs 260 crore and had submitted an expression of interest (EoI) to take over the airline on April 12 but submitted the bid after the deadline.

Most of the private entity’s cash was raised by divesting its stake in UPS Jetair Express for Rs 232 crore in October last year. The private entity’s main revenue source was from the listed entity, Jet Airways, which was paying money to JPL despite its sagging financial condition.

Lenders said Jet had repayments of Rs 1,700 crore due as of March 2019, which it has defaulted. Besides, the airline is to shell out another Rs 2,444.5 crore in FY20. But due to absence of adequate cash accruals, it has decided to shut its operations, leaving the lenders with a huge hole in their books.

Indian banks, which have lent Rs 8,500 crore to the airline, are now pinning their hopes on the sale of the collapsed airline by May.

Head of an asset reconstruction company, requesting anonymity, said with its operations now shut, it would be very difficult for the airline to get a serious bidder. “The offers made by the bidders have so many pre-conditions that none of the banks will accept that. So, it will go to the insolvency court,” said the person.  The banks have not converted debt into equity to date and Goyal continues to hold 51 per cent stake in the company.  

Another source said the National Investment and Infrastructure Fund (NIIF), which has made a bid for the airline, wanted the government to declare the airline industry as the infrastructure status. Until then it would be difficult for the NIIF to invest in the sector directly.