Banks ask Jet Airways to explain its liquidity situation
Domestic and foreign creditors of Jet Airlines will meet the airline’e executives today to help renegotiate contracts and revive the poor cash flow situation
Mumbai: Domestic and foreign lenders of Jet Airways (India) Ltd have asked the company to explain its liquidity situation, just a few days after the airline defaulted on a scheduled loan repayment. The lenders will now meet the airline executives, along with various vendors, and help Jet Airways renegotiate contracts and revive its poor cash flow position in the coming days, according to two people with the knowledge of the discussions.
A consortium of the airline’s domestic lenders, led by State Bank of India (SBI), and vendors, including lessors, and those providing engineering, spare parts, credit card and airport services, will meet officials of the beleaguered-airline on 8 January, said a senior banker with knowledge of the matter.
Jet’s foreign lenders are expected to meet its executives next week, said a second person with knowledge of the matter.
The airline faces the daunting task of turning around its loss-making operations and raising money from the market to fund its operations and service debt.
The airline had in September informed its overseas lenders that it will raise about ₹3,500 crore over six months through a stake sale in its loyalty programme—Jet Privilege Pvt. Ltd—and infuse fresh funds into the company. The airline had also told lenders it will shave off costs by as much as ₹2,000 crore over two years, after it missed several loan covenants that the airline had earlier agreed to. However, Jet Airways is yet to find fresh funds or monetize its stake in its loyalty programme. The airline’s cost cutting measures may also take a few more quarters to show significant results.
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.
“Lenders want to ensure that the outstanding dues of lessors and vendors are sorted out to avoid any cancellation of lease contracts,” said the senior banker mentioned above, who did not want to be named.
“Jet Airway’s lenders, along with SBI Caps, are working on a restructuring package that includes conversion of debt into equity, additional loan facility, and equity infusion by promoters,” the banker said.
To this effect, SBI, Jet Airway’s largest lender, appointed EY to conduct a forensic audit into Jet Airways books, from 1 April 2014 to 31 March 2018. The process is underway.
The audit carried out by EY could also determine if the SBI-led consortium of banks will make further funds available to Jet Airways, which has the guarantee of its partner Etihad Airways to raise up to $150 million.
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Any further restructuring steps taken by bankers may be conditioned to the promoter diluting his stake, said an analyst tracking the sector for a foreign brokerage.
Bankers also have the option to convert Jet Airways’ debt into equity, or take the airline to the National Company Law Tribunal (NCLT) if its current promoters don’t resolve the situation at hand quickly.
The lenders, led by SBI, could also ask Jet Airway’s vendors to give the airline some concessions or allow the airline defer certain payments, to help it turn its operations around on the back of lower oil prices, the analyst said.
“Considering that Jet Airway’s liabilities are more than its assets, bankers may have to take a huge haircut if they approach NCLT for the airline’s liquidation,” said the analyst who didn’t want to be named.
“The bankers could rather recapitalize the airline by converting debt into equity and consider turning around the airline on back of low oil prices,” the analyst said.
A Jet spokesperson said: “We remain optimistic about outcomes with regard to discussions with lenders. The talks are progressing well and we hope to reach a positive resolution at the earliest.”
Jet Airways has been struggling with cash flows for the past six months because of rising fuel costs. It has defaulted on payments to a consortium of lenders led by SBI, the airline informed the stock exchange last week.
This was the first time Jet Airways has defaulted on debt repayment. The airline, which has reported three consecutive quarterly losses of more than ₹1,000 crore each, has about ₹8,052 crore of debt as on 30 September. Rating agency Icra Ltd cut the long-term rating on loans and bonds issued by Jet Airways from C to D, after the default announcement.
Mint had on 3 January reported that the promoters of cash-strapped Jet Airways may have to give up management control if they want to raise capital. The airline had to delay salaries and payments of a section of its staff and vendors to service its debt on time, the report said. However, with the cash situation deteriorating, the airline didn’t have an option but to default.
On Monday, Jet Airways shares rose 0.45% to ₹246.25 apiece on the BSE while the benchmark Sensex gained 0.43% to end the day at 35,850.16 points.
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