EXIM Bank likely to take back 6 grounded Jet Airways planes soon

Indian lenders had planned buying the planes as collateral

The Export-Import (EXIM) Bank of the US is likely to start proceedings to take back a few aircraft it financed for Jet Airways. Experts say if insolvency proceedings are initiated due to this, the Indian lenders to the airline are set to lose more as they have been unable to get rights over Jet’s aircraft.
 
Indian lenders had planned to use as collateral 13 Jet planes — including 10 Boeing 777s and three Boeing 737s. Of the 120 aircraft Jet initially owned, the 13 were the only ones on finance lease and owned by the airline. 
 
Of the 13 aircraft, six were financed by Citi Bank and Barclays on the back of guarantees from EXIM Bank. Four 777s were financed by an European bank and have already been deregistered, sources said.
 
The other planes were on operating lease and lessors have already deregistered most of those to give them to other airlines. Low-cost carrier SpiceJet has taken around 30 of those aircraft.
 
A consortium of Indian banks, led by the State Bank of India (SBI), have an exposure of Rs 11,261 crore to Jet, which is grounded for more than a month. According to a recovery plan formulated by the lenders, the 13 aircraft, the value of which is Rs 4,592 crore, would have cushioned the lenders against their exposure. “While SBI had proposed to pay off the debt of the foreign lenders in order to gain first charge over the 13 aircraft, the other banks didn’t agree to the proposal,” said an executive of one of the lenders.

 
According to the original proposal, lenders were considering paying US EXIM Bank Rs 1,500 crore in order to get first charge of Jet’s five aircraft. As Jet defaulted on loan repayment, EXIM Bank was considering taking back the aircraft. However, Indian banks, in order to increase the collateral, decided they would pay the loan in order to get control of the aircraft.
 
“The aircraft were taken almost 10 years back. In this period, most of the loan has been paid by Jet. About Rs 1,500 crore was to be paid by the Indian lenders in order to get control of the aircraft. The value of the aircraft is much higher, thus increasing the collateral of the Indian lenders,” the executive said.
 
State-owned carrier Air India and Tata-Singapore Airlines joint venture Vistara had even initiated discussions with the Indian lenders to take the planes on lease. A successful negotiation would have helped the lenders to retain some vale from defunct Jet.
 
Discussions are going on among the lenders, Hinduja group, and Abu Dhabi-based Etihad. But people aware of the development said the negotiations have not progressed as Hindujas are unwilling to acquire more than 24 per cent stake in the airline.
 
“There is a need for a third partner. While last ditch effort is going on to bring sovereign funds like National Investment and Infrastructure Fund (NIIF) or Mubadala Investment Company, the deal looks difficult,” the person said.
 
Sources pegged the total investment required by Jet to restart operations at Rs 5,950 crore. Etihad, which has 24 per cent stake in the airline, said it would be able to invest only Rs 1,700 crore and acquire only 24 per cent stake.