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Etihad offers to sell its 24% Jet Airways stake to SBI at a loss

In addition, it has offered to sell its 50.1% stake in Jet Privilege, estimated to be worth Rs 1,000 crore, to the state-owned bank. This move by the Gulf carrier threatens to derail Jet Airways' bailout plan

twitter-logoBusinessToday.In | March 20, 2019 | Updated 11:51 IST
Etihad offers to sell its 24% Jet Airways stake to SBI at a loss

India's second-largest airline Jet Airways flew into a whole new storm yesterday with its strategic partner Etihad formally refusing to invest further in the crippled carrier even as its pilots threatened to go on strike from April 1 if the resolution plan was delayed and their salary dues were not cleared by month-end.

Etihad has, in fact, formally asked State Bank of India to purchase its entire 24% stake in Jet Airways, The Economic Times reported. The Gulf carrier, already a jittery participant in recent discussions on the bailout plan for the airline, signalled its decision to exit Jet Airways at a Monday meeting between its CEO Tony Douglas and SBI chief Rajnish Kumar. The Bank-led Resolution Plan (BLRP), approved by Jet's shareholders last month, is being piloted by SBI.

Sources in the know told the daily that Etihad also wants the SBI to take over its liabilities in the form of a guarantee for Jet Airways' Rs 1,000 crore loan from HSBC Dubai. Significantly, the domestic carrier has defaulted on the first repayment of this loan. In addition, it has offered to sell its 50.1% stake in Jet Privilege, estimated to be worth Rs 1,000 crore, to the state-owned bank. Jet Airways owns the remaining 49.9% in Jet Privilege, the airline's frequent flyer programme.

The buzz is that Etihad is offering to sell its Jet stake at Rs 150 per share - the stock is currently trading on the BSE at Rs 218.50 apiece - valuing its entire 24% ownership at Rs 400 crore. The Abu Dhabi-based airline had picked up this stake in 2013 for $379 million (around Rs 2,060 crore at the time).

Etihad's exit decision poses a huge challenge to the beleaguered airline's revival plans. According to the draft resolution plan submitted to the lenders last month, Etihad was supposed to bring in around Rs 1,800 crore as fresh equity and increase its stake to 24.9% - just below the "open offer" threshold - while the bankers were to infuse another Rs 1,000 crore for a 29.5% stake. On an immediate basis, the lenders were to give Rs 750 crore to Jet Airways in lieu of the latter's stake in Jet Privilege.

The daily added that as per the plan, Rs 450 crore that Jet Airways owed to entities related to founder Naresh Goyal was to be converted into equity. Goyal, who has already infused Rs 250 crore, was to end up with a holding of 17.1% and not more than 22%. Reports indicate that Etihad pulled out of the rescue deal as Goyal refused to reduce his shareholding and exit active management.

On the verge of losing its strategic partner, Jet Airways has been scrambling for a new partner, which could well translate into a fresh round of resolution talks. Goyal has reportedly been talking to Etihad's Doha-based rival Qatar Airways for a possible investment. "Qatar Airways would be interested in Jet only with Goyal as a minority investor, a pre-condition put forward by Etihad too," a source told the daily, so things are far from optimistic for the airline.

As things stand, the airline burdened with a debt of around Rs 8,200 crore has been forced to ground about a third of its fleet - including six aircraft yesterday - due to non-payment of amounts owed to lessors under their respective lease agreements.

Meanwhile, the Jet Airways pilots' body National Aviators Guild - representing around 1,000 domestic pilots at the airline - decided at its annual meeting on Tuesday to go on strike from April 1, if "there is no proper clarity on the resolution process and salary payments by March 31".

Earlier in the day, the Jet Airways Aircraft Maintenance Engineers' Association (JAMEWA) penned a letter to the Directorate General of Civil Aviation informing that they have been under "extreme mental stress" due to non-payment of three months' salary. "It has been arduous for us to meet our financial requirements, result of which have adversely affected the psychological condition of Aircraft Engineers at work and, therefore, the safety of public transport airplanes being flown by Jet Airways across India and the world is at risk," the letter read.

Jet Airways' engineers, pilots and senior management have not been paid salaries for January and February and the dues till March reportedly add up to Rs 600 crore. In addition, 87.5% of their December salary is also due.

Reacting to these negative developments, especially Etihad's decision to exit, Jet Airways' shares plunged almost 5% yesterday and fell a further 4.61% in morning trade. Apart from eroding fortunes, Jet Airways also has to worry about its looming debt schedule - large repayments of Rs 2,444.5 crore due in FY20 and Rs 2,167.9 crore in FY21. Furthermore, having defaulted in servicing its loan obligations on December 31, 2018, the airline's 90-day window before its loans are dubbed non-performing assets (NPA) ends on March 31.

With PTI inputs

Also read: Jet Airways crisis: Banks may infuse funds provided major shareholders pledge shares

Also read: Jet Airways lenders led by SBI to get a board seat

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