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Jet Airways crisis: Lenders divided on interim funding; crucial board meeting today

Some of Jet Airways' lenders want founder Naresh Goyal to pledge more of his shares as collateral for advancing further loans. The airline's management is due to meet today to consider next steps

twitter-logo BusinessToday.In   New Delhi     Last Updated: April 16, 2019  | 12:25 IST
Jet Airways crisis: Lenders divided on interim funding; crucial board meeting today

The fate of Jet Airways continues to hang in balance with the SBI-led consortium of lenders unable to reach a consensus on releasing emergency interim funds to the beleaguered airline in Monday's marathon meeting. In an email to anxious employees CEO Vinay Dube yesterday announced that with the interim funding still not forthcoming, Jet Airways has extended the cancellation of international operations till April 19.

"The current status of our engagement with the lenders and other related matters shall be placed before the board tomorrow [Tuesday] morning, where the management will seek guidance from the board on the next steps forward. We will keep you updated on all critical developments," the email added. The airline is struggling under a debt pile of over $1.2 billion.

On March 25, Jet Airways' board had approved a debt-swap revival plan, under which the lenders were supposed release an emergency loan of Rs 1,500 crore and, in turn, acquire a majority stake in the airline. But, thus far, they have only disbursed less than Rs 300 crore - and that in small amounts - citing procedural delays. Due to this, the airline has not been able to pay disgruntled employees pending salaries and has been forced to ground the bulk of its planes - it is currently operating only seven planes, down from 123 in December. The airline's pilots along with engineers and senior staff were last paid for December 2018.

According to The Economic Times, some of Jet Airways' lenders want Goyal to pledge more of his shares as well as planes owned by the airline as collateral for advancing further loans. This latest condition was communicated to the airline's management during the meeting yesterday.

Jet Airways owns 17 planes - mostly wide bodied Boeing 777s and Airbus A330s - which have already been collateralised against funds that were raised to finance their purchase. The finance lease on some 777s is supposed to end this year. The rest of the airline's fleet was leased. "There is sufficient value in the wide-body aircraft to pledge as collateral," Manish Raniga, an independent aviation expert and former vice president at Jet Airways, told the daily.

"This value can be derived as the difference between the market value of the aircraft and outstanding loans and guarantees." According to a senior banker, while State Bank of India, Bank of India, Canara Bank and Syndicate Bank did not have a problem with releasing the emergency interim funds, PNB, ICICI and Yes Bank had objected to it. Goyal, who owns a 51% stake in the crumbling airline, has already pledged 31.2% to the banks. Last week, he had reportedly agreed to pledge more of his shares, totalling 41.1%, on condition that the banks release the promised interim loan funding without delay, but has not made any formal move in this direction. It is still not clear whether the reticent banks want Goyal to pledge his entire shareholding, but the buzz is that the former chairman is looking to retain 9.9% stake unencumbered.

Sources in the know told India Today that the lenders are unlikely to extend any interim funding as of now - they want to weigh the seriousness of bids received for the recently-concluded stake sale before firming up any funding plans. That's terrible news for the airline since it will be near-impossible to continue operations without the bailout infusion. It is already running out of cash to pay oil companies to keep its remaining fleet flying.

Hence, there's a lot riding on the stake sale. Several entities have submitted expressions of interest (EoI), including Etihad Airways, which owns 24% of Jet Airways and is the second largest stakeholder, TPG Capital and Indigo Partners. Goyal's general sales agency (GSA), Jetair Pvt Ltd, submitted an initial bid, too, as part of a consortium that includes two little-known foreign entities, Future Trend Capital and Adi Partners.

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"The bid process for orderly sale of equity in Jet Airways is currently being run by SBI Caps and is being vetted by the legal team," SBI said in a statement after the Monday meeting between the banking consortium and Jet airways management, adding that prospective bidders will be shortlisted shortly. A banker told the daily that the shortlisted investors will be given time till May 10 to submit binding bids. The date initially announced by SBI Capital Markets was April 30. "The proposed equity conversion by banks, if any, will be undertaken as a transitory mechanism to facilitate the bidding cum sale process," the statement added. The much-talked about debt-swap revival plan, which forced Goyal to step down from the board, got stuck in a limbo after the Supreme Court squashed the RBI's February 12 circular.

According to Raniga, Jet Airways has every chance of survival provided banks give the much-needed interim funding. "Failure to do so will impact customer experience and add to the list of turnaround activities required to stabilise the business for long-term viability. Potential investors may find Jet less attractive if operations worsen," he added. All eyes are now on the board meeting to be held today.

Edited by Sushmita Choudhury Agarwal with PTI inputs

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