Mumbai: In a move that could give it some breathing space, cash-strapped Jet Airways (India) Ltd is working on a three-way deal with the Godrej group’s real estate arm, Godrej Properties Ltd (GPL), to develop a 1.47-acre plot in Bandra Kurla Complex (BKC), a business district in suburban Mumbai, according to an investment banker and a real estate consultant. Both are advising the companies on the deal.
GPL will pay upfront cash to Jet Airways and absorb a certain portion of the debt that Jet Airways will raise to pay for the land. Both companies will also share revenues once the real estate is developed.
Two senior Jet Airways executives also confirmed the talks with GPL without divulging details. The GPL spokesman declined to comment for this story. The Jet Airways’ spokeswoman said the company “is still in discussion with parties as regards the BKC property”.
“Godrej Properties will invest Rs700 crore to buy additional floor space index (FSI) to build 1.4 million sq. ft of saleable space,” said the investment banker. FSI is the ratio of the total floor area of buildings on a certain location to the size of the land of that location.
Jet Airways, India’s largest carrier by passenger traffic, had bid Rs826 crore for rights to develop the space in an auction by the Mumbai Metropolitan Region Development Authority (MMRDA), the apex body for planning and coordination of development activities in Mumbai, in 2008.
Till date, Jet Airways has only given Rs10 crore to MMRDA and it faces the risk of losing the earnest money—a deposit made to show a serious intent in a transaction—as it could not pay more.
“Godrej will give upfront cash to Jet Airways since it has made some work on the plot. It will also take TDR (transfer of development rights) from MMRDA. One of the Godrej group companies will take over the liabilities of Jet Airways towards this land deal,” the banker said.
According to him, Godrej will also approach the Airports Authority of India to increase the height of the proposed property so that it can have more saleable area. BKC is in close proximity to the Mumbai airport.
Jet Airways will also purchase 250,000 sq. ft space for shifting its headquarters to BKC, but it will not pay anything for this as the cost will be adjusted against the company’s share in the revenue from the property.
The airline is currently headquartered at SM Centre in Andheri, a Mumbai suburb. This property is on lease.
One senior Jet Airways executive, requesting anonymity, said his airline is yet to sign the agreement, though both the parties have more or less agreed to the current three-way structure.
According to experts, this deal will bring relief to Jet Airways as it will bring some cash immediately to the airline that has Rs13,759.50 crore debt on its books as of 31 March. Also, the airline will save at least Rs10 crore rent a year by shifting to the new office space, experts say.
Hit by the global economic slowdown beginning late 2008, Jet Airways was unable to develop the BKC plot.
“It is a win-win situation for both Jet Airways and Godrej Properties. By giving away the developing rights to Godrej Properties, Jet Airways would not require to go for raising debt to buy the plot and invest management in real estate development. Besides, the airline would also get a state-of-art headquarters in BKC,” said Sanjay Dutt, chief executive officer (business) of real estate services firm Jones Lang LaSalle Meghraj.
The deal will also be an opportunity for GPL, which does not have a presence in Mumbai’s front-office segment, to demonstrate its presence and capabilities of building an A-grade office space in the new financial hub, he added.