Since the beginning of this month, Jet Airways' stock has taken quite a beating on the back of one bad news after another. It's currently down 12% on the BSE, and things seem to be getting harder for the financially-troubled airline.
Citing sources in the know, The Economic Times reported that Jet Airways CEO Vinay Dube personally met the State Bank of India (SBI) top brass seeking its support in the time of need. But the latter is not exactly rushing forward with emergency funding. SBI reportedly wants details on the airline's future plans and cash flow position as well as sufficient collateral before opening the credit tap.
"Yes, we had a meeting with the Jet management where they have sought liquidity support from us," a source told the daily. "They can be supported further but the final decision will depend upon the plan they submit. Whether there will be a stake sale or some strategic partnership where some fund infusion will happen, that is not clear yet. I would like to keep my money secure, further support will depend on exclusive guarantees... that ring fencing is very important to the bank."
The country's largest lender, which posted a loss of Rs 4,876 crore for the first quarter of this fiscal on the heels of an even more disappointing Q4 FY18, clearly does not want to risk a repeat of its fiasco with the now defunct Kingfisher Airlines. To remind you, SBI is the leader of consortium of 13 banks that have accused Vijay Mallya of causing them a loss of Rs 6,027 crore - which snowballed to Rs 9,990 crore after including interest as on May 15 - by defaulting on loans taken during 2005-10. As BusinessToday.In has previously pointed out, Jet Airways' existing debt is already in excess of Rs 8,400 crore.
"What SBI will require is a concrete plan on future cash flows, the payments that have to be made for fuel and airline lease... they are yet to get back to us," sources said, adding, "Obviously, the usual risk based parameters will be applicable so the interest will definitely be higher."
Adding to the Naresh Goyal-promoted airline's woes, sources told PTI that the aviation regulator DGCA is set to conduct its financial audit from August 27. Jet's fiscal conditions have come under pressure this year due to the surging jet fuel prices, the depreciating rupee and the low fares courtesy the cut-throat competition in the sector. "For the full year ended March 31, 2018, we reported a loss of Rs 636 crore as against a profit of Rs 1,499 crores for fiscal 2017 (including the impact of the switch to Indian Accounting Standards)," Amit Agarwal, the airline's Deputy CEO and CFO, had admitted on the last earnings call in May. That's the first loss after two consecutive years of profits.
And it is expected to post an even bigger loss in its Q1 results, which the airline recently deferred to an unspecified date. "The audit committee did not recommend financial results to the board for its approval, pending closure of certain matters," Jet Airways said in a regulatory filing without offering more details.
SBI's reticence is also understandable since it has already put Jet Airways on its overall watchlist for stressed accounts. "Yes (we have exposure to Jet), but you are asking me to cross the 'Lakshman Rekha' (boundary) to talk about individual accounts. But since you have asked, I am telling, it's part of the watchlist, SMA 1 and 2 in the June quarter," SBI Chairman Rajnish Kumar said in a conference call after releasing the bank's Q1 results.
Special mention accounts, or SMA, are categories laid down by the Reserve Bank of India to classify default on loan accounts. According to the apex bank, accounts with principal, interest or any payment overdue for a period between one and 30 days are to be classified under SMA-0 category. The account is put under SMA-1 category if payment is overdue for 31 to 60 days, and under SMA-2 category if the non-payment period is between 61-90 days.
In response, Jet Airways, however, claimed that its account with SBI and all other banks is "standard" and it has not defaulted on any of its payment obligations. "We have had scheduled amortisations in the past so many years and the company has met its repayment obligations all the time. This is evidenced by the reduction in the overall debt of the company by Rs 3,000 crore in the last three years," it added.
The airline has also disclosed that it has been implementing several measures to cut costs as well as increase revenues in recent times - although it had to shelve plans for a salary cut among employees in the wake of protests. "We continue to focus on various liquidity initiatives and have been evaluating funding options. In this connection, its executives regularly interact with various banks. The airline is working on various options which will enable it to sustain its operations," the airline's spokesperson told the daily.
(Edited by Sushmita Choudhury Agarwal)