Lenders to cash-strapped Jet Airways weigh open auction process

Stake sale likely to be completed in 2 months; banks to infuse Rs 1,500 cr immediately to restore normalcy

Lenders to cash-strapped Jet Airways plan to sell their stake in the airline through an open auction process over the next two months, seeking maximum value for the asset. 

In the meantime, the consortium led by State Bank of India will provide emergency funding of around Rs 1,500 crore to bring operations back to normal, in phases. A senior executive of a large public sector bank said this is a transitory arrangement in which the lenders will acquire control, run the process of transparent bidding, and receive final bids by the end of April. 

The bids will then be evaluated according to guidelines by the civil aviation ministry, following which a buyer will be selected. The outer limit for the process is May-end. Transfer of control to the buyer will be effected by June-end.

The resolution is being overseen under the framework of the Reserve Bank of India’s February 12, 2018 circular for dealing with stressed assets, which mandates the lenders to complete resolution within 180 days of default. In case of Jet, the 180-day period had begun from January 1, 2019. 

The open auction process will be similar to what is followed under the National Company Law Tribunal, but will be outside the insolvency code and tribunal. It is being done in this manner given Jet is a service sector enterprise with little or no assets. If lenders take the NCLT route, the airline will be grounded with practically no chance of revival. The cases referred to NCLT have taken a long time for resolution, said one private banker. 

Asked about the hit banks will have to take on exposure, a senior banker said: “The extent of write-downs we may have to take will become clear from the bids (price indicating expected haircuts) during the auction.” 

During the two-month period, lenders will control the airline but will run it with the help of airline industry professionals and turnaround experts, backed by active oversight of the board of directors. Naresh Goyal and his nominees will exit the board. 

Lenders said they would prefer to have an experienced banker as chairman of the board.

Banks will provide emergency funding of about Rs 1,500 crore to the airline and want it to return to 100 per cent operating capacity. 

A large number of planes in Jet’s fleet have been grounded due to non-payment of lease rentals. Lenders (consortium members) are approaching the Union civil aviation ministry with a plea not to take away the airline’s landing rights, slots and traffic rights, as it is necessary for protecting the economic value of the enterprise and attracting bidders, the bankers added.

The government was toying with the idea of providing unused airport slots of Jet Airways to other domestic airlines on an interim basis, a senior civil aviation ministry official had said on Wednesday, with a view to minimise flight disruptions.

The ministry has also held interactions with representatives of carriers such as Air India, SpiceJet, GoAir and IndiGo, to discuss issues such as augmentation of fleet and utilisation of existing planes.

The domestic carriers will add 20-25 more planes by April-end. Jet Airways as an entity is still a good asset with a strong brand, and evokes huge investor interest, said a senior public sector bank executive. 

The carrier’s international network and slots at key airports, too, are an attraction and lenders will be able to draw interest if they are successful in restoring the airline to its earlier strength.

“The airline has a well-balanced international network and serves all main markets from India, Hong Kong and Singapore in the east, several cities in West Asia, and London. Its partnership with Air France-KLM and Delta has enabled it to tap into Europe and North America and garner corporate traffic from those countries. The other key attraction is slots, especially at Mumbai airport, where it continues to be the dominant carrier,” said an aviation expert. 

With the fund infusion, the airline will be able to partially clear dues on lease payments and then negotiate a fresh payment plan to get the fleet operational, said people in the know.