Feb 6, 2019

Gyaankosh – Jet Airways Crisis

Posted by Genesis Mentors | Leave a reply

Jet Airways Crisis

 

What is the crisis all about?

 

  • On 31st December, Jet Airways defaulted on payment of interest and principal instalment to the consortium of lenders led by State Bank of India (SBI).
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  • The company defaulted as they incurred huge losses over three consecutive quarters of over ₹ 1,000 crore each and the total debt is close to ₹ 8,052 crore as on 30 September 2018. The rise in fuel cost for the last 6 months and the ever-bruising fare war between different airlines also added to their woes.
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  • In August 2018, the company drafted a revival plan after the airline reported a loss in the June quarter, which included reduction of non-fuel costs, capital infusion and monetization of the airline’s stake in its loyalty programme.
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  • In September 2018, the company said that it would raise about ₹ 3,500 crore over the next six months through a stake sale in its loyalty programme — Jet Privilege Private Ltd. — and infuse fresh funds into the company. During October, the airline received around ₹ 258 crore as pre-purchase payment from Jet Privilege. This effort however was not enough as Jet Airways failed to monetize its stake in Jet Privilege.
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  • Even the proposed deal with Tata Sons, who had shown interest in acquiring a stake with Jet Airways reached no common ground due to issues regarding control premium and non-compete clauses.

 

Impact of the crisis on the company

 

  • The airline had to delay the salaries and payments of a section of its staff and vendors to service its debt on time.
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  • The company also had to halt deliveries of Boeing Co. 737 Max planes. The company was scheduled to take delivery of 11 Boeing Co. 737 Max planes by March but has so far received only 5 planes.
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  • Rating agency ICRA Ltd. cut the long-term rating on loans and bonds issued by Jet Airways from C to D, after the default announcement.

 

What next?

 

  • The company now has 180 days from the date of default to work out a resolution plan for the stressed loan account, according to the latest regulations of the Reserve Bank of India (RBI).
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  • The company needs to raise at least $250-300 million immediately to pay off its dues to lenders and other vendors. Also, the company would need an additional another $450-500 million by the end of 2020 when some of its overseas debt would mature.

 

Recent Developments

 

  • In January, Jet Airways founder and promoter Naresh Goyal made a financial offer to State Bank of India (SBI) to retain control of the ailing airline. Naresh Goyal has told SBI that he is ready to invest up to ₹700 crore and pledge all his shares, provided he retains at least a 25% stake in the airline.
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  • On the other hand, Etihad Airways PJSC, which owns 24% in Jet, is willing to bring in more money, but that would trigger the open offer threshold. Etihad says it will invest only if it is allowed an exemption and if Jet Airways founder Naresh Goyal exits the airline. However as per SEBI’s takeover code, any company acquiring control in a listed company, or when its stake crosses 25%, must make an open offer to its minority investors.
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  • On 28th Jan 2019, Jet Airways Ltd. said it would seek shareholder’s approval to convert existing debt into equity, part of the efforts by the cash-strapped Indian airline to resolve its financing problems. The airline plans to increase its share capital to 22 billion rupees ($309.43 million) from 2 billion rupees.
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  • SBI is planning to take an equity stake of at least 15 percent in Jet Airways India Ltd. as lenders to the carrier plan to convert part of their loans into equity. As a result Chairman Naresh Goyal’s stake in Jet Airways will fall below 20 percent from the current 51 percent. The air carrier is also looking at Etihad Airways PJSC, the current equity partner with 24 percent stake to infuse additional funds which if it happens might take Etihad’s total holding to more than 40 percent. However, the final decision in this case will be taken up at the company’s extraordinary general meeting on 21st Feb.
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  • On 29th Jan 2018, Jet Airways was forced to ground three of its Boeing 737 planes due to non-payment of lease rentals leading to cancellation of around 20 domestic flights along the Delhi, Chennai, Mumbai, Pune, Hyderabad, Port Blair and Bengaluru route.
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*Note: The blog would be updated on a weekly basis as and when there would be any major development related to the case
 

 

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