The troubled Jet Airways, which has been grappling with financial woes for a while now and recently defaulted on its bank loans for the first time, may need to introduce big changes to survive. Analysts tracking the aviation sector told Mint that the current promoters of the airline, Naresh Goyal and his family, who own a 51% stake, may have to give up management control if they want to raise capital.
According to the sources, Jet Airways needs to raise at least $250-300 million immediately to pay off its dues to lenders and other vendors.
The cash-strapped airline reported its third consecutive quarterly losses for the quarter ending September, and has been scrambling for funds to tide over a liquidity crisis. Despite delaying salaries and vendor payments to service its debt on time, Jet Airways' deteriorating cash situation reportedly left it with no option but to default on repayment. The past year saw the aviation sector take a beating courtesy intense pricing competition, a weak rupee and high fuel costs.
Post the airline's announcement of the default to the stock exchanges, its shares plummeted nearly 7% yesterday and rating agency ICRA cut the long-term rating on loans and bonds issued by Jet Airways from C to D. "This rating downgrade considers the delay by the Company in the payment of interest and principal installment due on 31 December, 2018 due to cash flow mismatches and delays in the implementation of proposed liquidity initiatives by the Company," Jet Airways said in a regulatory filing on Wednesday.
Although Goyal is in talks with Tata Sons as well as Jet stakeholder Etihad Airways to navigate the current crisis, the buzz is that the negotiations are not making much headway because both require Goyal to cede control, partially or completely. Jet Airways has, furthermore, failed to monetize its stake in Jet Privilege as planned. "Jet Airways' promoters need to urgently recapitalise the airline and infuse equity, possibly from Etihad or somewhere else," Dhiraj Mathur, partner, leader-aerospace and defence, PwC India, told the daily. "The promoters may possibly have to give up control of the airline [in their bid to recapitalize their airline]."
Analysts explain that the much-needed fundraising will also depend on the airline's books as lenders undertake a forensic audit into its accounts. The other scenario reportedly involves the lenders converting debt into equity.
"Jet Airways would need Rs 3,600 crore to repair its balance sheet, finance its fleet and fund its operations to achieve break-even or profitability," aviation consultant Mark Martin, chief executive of Dubai-based Martin Consulting LLC, told the daily. "With oil expected to drop to $40 a barrel, it is the right time to raise money from the market, especially when Jet Airways has one of the largest and most established networks in South Asia."
Besides, the airline can't afford to dither on deciding its future course of action. As per the latest RBI regulations, following its recent loan default, Jet Airways' lenders get 180 days to work out a resolution plan.
Edited by Sushmita Choudhury Agarwal