Mumbai: A consortium of overseas lenders to Jet Airways (India) Ltd may ask the airline to expedite the repayment of loans worth $150 million amid its deteriorating financial health, two people directly aware of the matter said, requesting anonymity. A letter on behalf of the lenders was sent by Dubai-based Mashreq Bank to Jet Airways on Monday seeking a detailed response by 24 September. Mashreq Bank was the arranger to the loan. The lenders include the Dubai branch of ICICI Bank Ltd and the Hong Kong branch of Punjab National Bank Ltd.
The move of the overseas lenders compounds worries for the airline controlled by Naresh Goyal. Jet Airways, in which Etihad Airways of Abu Dhabi has a 24% stake, is facing the brunt of sharply higher costs, especially of crude oil, intense competition in the local market, as well as rising debt and losses.
The letter from the overseas lenders sought details from Jet Airways on issues that have forced a significant erosion of its credit profile, resulting in loan covenant breaches, said one of the two people cited earlier.
These include reasons behind the airline posting losses for two straight quarters, a 71% decline in market capitalization since January, delay in getting receivables from the International Air Transport Association, delay in payments of salaries to senior employees and pilots and downward revision of credit ratings by various rating agencies.
Jet Airways, Mashreq Bank and Punjab National Bank didn’t respond to separate emails from Mint seeking comment. A spokesperson for ICICI Bank said it doesn’t comment on specific clients.
Mint had on 14 August reported that Jet Airways had written to a group of overseas lenders, seeking a waiver of a loan covenant on its existing debt facility of about $185 million to avoid a default on its loan repayment obligation.
At the time, the airline had informed the lenders that it would not be able to meet the minimum $50 million profit condition for FY19, as stipulated in the loan covenant.
The report said Jet Airways had to repay or refinance a total of at least $500 million of its existing debt in the near future to avoid potential defaults.
Covenants are conditions put in place by lenders to protect themselves from defaults by borrowers. Lenders may recall a loan, seize assets or slap penalties in case the borrower violates a loan covenant.
Rising jet fuel prices and a weakening rupee have swelled operating costs of Indian airlines as a majority of the payments are dollar-denominated, resulting in carriers reporting losses or lower profits in the past couple of quarters.
While the domestic aviation sector faces headwinds, Jet Airways, which is essentially a full-service carrier, also faces stiff competition from budget airlines, which operate on a comparatively lower cost model.
The benchmark Brent crude price surged 44.54% in the one year. In the same period, the rupee weakened 12.11% against the dollar.
Jet Airways, which had about a 13.6% share of the domestic market in July, reported on 27 August a fiscal first quarter loss of ₹ 1,323 crore, excluding those of its unit. It was the second consecutive quarterly loss for the carrier.
The airline, however, managed to trim its debt to ₹ 7,364 crore as of June-end from ₹ 8,082.65 crore in March-end, as it accessed $300 million in advance lease incentives and borrowings.