Last week, the board of the cash-strapped Jet Airways approved a Bank-Led Provisional Resolution Plan (BLPRP) that entails a debt-to-equity swap. If approved at the extraordinary general meeting that Jet Airways has called for on February 21, the BLPRP will make a consortium of banks led by SBI the largest stakeholders in India's second-largest airline.
The plan contemplates conversion of lenders' debt into 11.4 crore shares, or reportedly a 50.1% stake. Interestingly, Jet Airways said in a recent regulatory filing that the allotment of shares "will be made at an aggregate consideration of Re 1".
So why is the full-service carrier selling a majority stake for such a pittance? As per the RBI's February 2018 revised framework for the resolution of stressed assets, banks are allowed to convert their debt or loans into equity holding in a defaulting company and, as Jet pointed out to the exchanges, when the book value per share of a company is negative, the lenders can convert debt into equity at Re 1.
However, the structure is expected to be temporary, giving the airline time to raise equity from investors, Bloomberg reported. The BLPRP currently estimates a funding gap of Rs 8,500 crore - including proposed repayment of aircraft debt of Rs 1,700 crore - to be bridged through fresh equity infusion, which would alter Jet Airways' shareholding pattern, along with debt restructuring and asset disposals, such as selling aircraft and leasing them back.
Hence, Jet Airways' lenders will reportedly also participate in an equity issuance round beyond the already allotted 11.4 crore shares. The airline has already held talks with its strategic partner Etihad as well as the Tata Group. Then, last month, the airline's promoter Naresh Goyal told SBI that he is ready to invest up to Rs 700 crore in the crisis-hit airline on the condition that he retains a 25% stake post the infusion. He currently owns a 51% stake (as on December 2018).
Sources recently told PTI that Jet Airways is likely to receive fund infusions totalling over Rs 3,000 crore post the debt-rejig. While Abu Dhabi-based Etihad, which currently owns a 24% stake in the domestic carrier, is expected to pump in around Rs 1,400 crore, the government-backed National Investment and Infrastructure Fund is likely to put in Rs 1,400 crore in lieu of a 19% stake in the airline. The bank consortium will reportedly convert debt into equity worth around Rs 600 crore.
Much now depends on the outcome of the EGM tomorrow. In the meantime, Jet Airways has to also contend with its disappointing third quarter results. On Thursday, the airline reported a net loss of Rs 732 crore, its fourth consecutive quarterly loss.
There is a sense of urgency on rescuing Jet Airways given the looming general elections. With 23,000 jobs at stake, the failure of the bailout plan would send airfares spiralling.
Significantly, while Jet Airways reportedly lost money in all but two of the past 11 years, it is not the only airline struggling. InterGlobe Aviation, the parent company of IndiGo, last month reported a 75% fall in profit after tax at Rs 190.9 crore in the December quarter. The high fuel prices in 2018 and steep currency depreciation adversely impacted the bottomline of every airline in the country. The high taxes on jet fuel and the very price-sensitive Indian customers only make matters worse for the domestic aviation sector.
In the bargain, 2012 saw Kingfisher Airlines, founded by fugitive tycoon Vijay Mallya, shut shop after defaulting on loans and overdue payments. SpiceJet Ltd came close to collapse two years later but its founders managed to revive the airline. Meanwhile, the Maharajah is saddled with a debt of over Rs 50,000 crore - the national carrier is currently staying afloat on a bailout package extended by the previous UPA regime in 2012.
The foreign players have not been any luckier. The local ventures of Singapore Airlines Ltd and AirAsia Bhd, Vistara and AirAsia India, are both reportedly posting losses.
(Edited by Sushmita Choudhury Agarwal; with PTI inputs)