Lenders of debt-laden Jet Airways ask management for equity infusion plan

Negotiations with Etihad stuck due to valuation, management control issues

Lenders of Jet Airways have asked the management of the airline to submit a concrete plan of equity infusion as a pre-condition for any debt restructuring or a fresh line of credit.

“The lenders did have elaborate discussions with the board and have asked the airline to submit a plan for equity infusion from promoters or partners, and a business plan from the company. This is a pre-condition that the consortium has put forward to the company,” said a person aware of the development. 

He confirmed that the company had not yet provided any resolution plan to the lenders. According to a rough calculation by the lenders the company needs an infusion of around $350 million, the person said. 

The airline last month had initiated discussions with lenders consortium led by State Bank of India to convert a part of their loan into equity as part of the recovery process from financial stress. Jet Airways has a debt of around Rs 82 billion as of September 30. In response to queries, a Jet Airways spokesperson said that the company’s strategy of a turnaround was progressing well. 

“The company’s management is working to execute its turnaround strategy and efforts in that direction are progressing well. The entire process has the complete support and cooperation of all stakeholders, including the airline’s strategic partner. Appropriate announcements in this regard will be made in due course and when necessary,” he said. 

However, the company has been unable to finalise a plan of stake sale as the board meeting on Thursday ended inconclusively. It has been learnt that while advanced discussions with Abu-Dhabi based Etihad Airways over increasing stake is going on, it remains stuck due to issues of management control. Sources said that Jet chairman Naresh Goyal and the Abu-Dhabi based airline are yet to agree on equity infusion or loan guarantees.

A second person close to the developments said the airline had finalised a business plan drafted by consultant Mckinsey & Co and it would be communicated to the lenders soon. 

“The business plan is done and negotiations are on between the airline, its lenders and Etihad for resolution of its financial woes. There are various elements under consideration,” the person said.

While the exact details of the turnaround plan are not known, the airline is pursuing sale and lease back options for its wide body planes for immediate generation of cash besides targeting improved revenue growth through unbundling of fares. 

According to an executive of an aircraft leasing firm, Jet Airways has finalised sale and leaseback for 50 Boeing 737 Max to generate cash. The airline has more than 200 such aircraft on order.

But funding remains critical, and banking sources pointed out the airline would need to close transaction by March-end as there are large loan repayments due. According to rating agency ICRA, Jet Airways has repayments obligations worth of Rs 17 billion between December and March, and Rs 24.4 billion in FY20 and Rs 21.67 billion in FY21.

Downgrading credit worthiness of the company earlier this month, ICRA cited delay in fund infusion plan of the company.  “The rating downgrade considers delays in the implementation of the proposed liquidity initiatives by the management, further aggravating its liquidity, as reflected in the delays in employee salary payments and lease rental payments to the aircraft lessors,” it said.

The airline has delayed payment of salaries to senior executives, pilots, engineers, and cabin crews and has sought time till March to clear dues.

Jet Airways posted a net loss of Rs 12.97 billion in the second quarter of the fiscal year 2018-19, excluding its units, its third successive loss. It had a net profit of Rs 496.30 million in the same period a year earlier.