Jet Airways needs $4 billion to secure its future in the skies

Jet Airways needs $4 billion to secure its future in the skies

Jet Airways will need $1 billion initial working capital, followed by $3 billion over the course of 5-7 years before the airline can break even; it needs to be seen whether the bidders can bankroll these expenses

After staying grounded for 18 months, there's a sudden ray of hope for Jet Airways. A resolution plan submitted by a consortium of UK-based Kalrock Capital and UAE-based Murari Lal Jalan has recently been approved by the Jet's committe of creditors (CoC) by a majority of votes. Though the details of the plans have not been disclosed publicly, there are reports that lenders will be taking a haircut on their dues as the consortium has offered a payout of some Rs 866 crore.

As per reports, the resolution professional (RP) for Jet Airways received claims worth Rs 40,000 crore from different creditors out of which Rs 15,525 crore were approved. With just about Rs 866 crore on offer, creditors will have to write off a significant part of their debt unless there are plans by the (probable) new owners to offer equity to the creditors in the new company.

Experts, however, remain sceptical of the entire process. This is the fourth time Jet Airways' RP had requested bids for the airline, after three previous rounds failed to elicit desired responses.

ALSO READ: Jet Airways lenders approve Kalrock Capital-Murari Jalan's resolution plan

"It's just a baby step to acquire the carrier. The bigger task is to set it up again and become operational," says Mark Martin, CEO of Martin Consulting, adding that besides the initial pay off to the creditors, the new owners would need at least $4 billion to operate the airline in the years to come. "I am expecting at least $1 billion of initial working capital requirements that includes expenses like getting planes from the lessors. Then, airlines typically take 5-7 years to break-even, and till then, the airline would need funds of about $3 billion. We will have to see if they can bankroll these expenses," he says.

Although Jet has about six Boeing 777-300ERs in its fleet - acquired from lessors in July this year - the airline will have to spend over $1 million on each aircraft for maintenance if it plans to fly those planes again. That's not all. The airline will have to pay money to the lessors if it adds new aircraft to the fleet which is absolutely necessary because widebodies (Boeing 777-300ERs) will not serve its purpose.

"The new owners are only getting the brand. It's Jet Airways minus Naresh Goyal. The goodwill Goyal had to get as many aircraft as he wanted, that's not going to happen. The new owners will have to build that credibility and reputation from scratch. That will take a lot of time," says an aviation analyst.

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In most cases, the success of the airline business is directly related to the expertise of its promoters. Take the case of IndiGo, which has cornered 59.4 per cent market share in the domestic market. Its promoter Rahul Bhatia and Rakesh Gangwal spent years in the travel and aviation industries before making a plunge into this business.

Kalrock Capital, on the other, is a financial advisory and alternative asset management firm with expertise in real estate, venture capital and special situations. The other investor, Jalan is primarily focussed on real estate, mining, and FMCG businesses across India, Russia, UAE, and Uzbekistan.

"We should not jump to conclusions as of now. Kudos to the new investors for having the courage to invest in an airline that has nearly lost all of its assets - people, slots, aircraft, etc. I hope this is a serious attempt to put Jet back into the skies, or is there's something more to this than meets the eye," says the analyst quoted above.

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