After default, Naresh Goyal may have to give up Jet Airways to keep it afloat

Mumbai: The promoters of cash-strapped Jet Airways (India) Ltd, which has defaulted on loan repayments, may have to give up management control if they want to raise capital, say analysts.

According to two analysts tracking the aviation sector, including the development at Jet Airways, the Naresh Goyal-led airline had to delay salaries and payments of a section of its staff and vendors to service its debt on time. However, with the cash situation deteriorating, the airline didn’t have an option but to default, said one of the analysts, who works with an international brokerage. He declined to be named.

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 the State Bank of India (SBI), the airline informed the stock exchange late on Tuesday.

Both analysts said that Jet Airways needed to raise at least $250-300 million immediately to pay off its dues to lenders and other vendors.

“This is to inform you that the payment of interest and principal instalment due to the consortium of Indian banks (led by State Bank of India) on 31 December 2018, has been delayed due to temporary cash flow mismatch and the company has engaged with them in relation to the same,” the airline said in a statement.

This is the first time Jet Airways has defaulted on debt repayment. The airline, which has reported three consecutive quarterly losses of over ₹ 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.

The downgrade of rating considers the delay in payment of interest and principal instalment due on 31 December and delays in implementation of proposed liquidity initiatives, Jet Airways told stock exchanges on Wednesday.

In August, Jet Airways drafted a revival plan after the airline reported a loss in the June quarter, which included reduction of non-fuel costs, capital infusion and monetization of the airline’s stake in its loyalty programme.

In September, the airline informed lenders that it would raise about ₹ 3,500 crore over the next six months through a stake sale in its loyalty programme—Jet Privilege Pvt. Ltd—and infuse fresh funds into the company. During October, the airline received $35 million (around ₹ 258 crore) as pre-purchase payment from Jet Privilege.

Jet Airways has, however, failed to monetize its stake in Jet Privilege. Besides, the proposed deal with Tata Sons Ltd, which had shown interest in acquiring a stake in Jet Airways, has not made any headway due to issues regarding control premium and non-compete clauses.

“The fundraising will depend if Mr Goyal is willing to give up control in Jet Airways. Also, with lenders carrying out a forensic audit into its accounts, the airline will have to come out clean if it is to successfully raise money from either the market or the industry,” said the first analyst cited earlier.

“The other scenario involves the lenders converting debt into equity,” said the second analyst.

Following the default, Jet Airways’ lenders will have 180 days to work out a resolution plan for the stressed loan account, according to the latest regulations of the Reserve Bank of India (RBI).

Jet Airways did not respond to emailed queries on its plans to raise capital after the default announcement. Jet Airways’ chief financial officer, Amit Agarwal, did not respond to calls.

On 7 December, Mint reported that Etihad Airways PJSC of Abu Dhabi had offered to guarantee loans worth $150 million, so that Jet Airways could keep the airline operational. The development followed several rounds of discussions, including a potential equity infusion by Etihad Airways, and adding a third Indian partner, the Mint report had said.

Queries sent to SBI’s spokesman remained unanswered till the time of publishing this story. An Etihad spokesperson said that the airline “doesn’t comment on rumour or speculations”.

“Jet Airway’s promoters needs to urgently recapitalise the airline and infuse equity, possibly from Etihad or somewhere else,” said Dhiraj Mathur, partner, leader-aerospace and defence, PwC India. “The promoters may possibly have to give up control of the airline (in their bid to recapitalize their airline).”

Jet Airways would need ₹ 3,600 crore to repair its balance sheet, finance its fleet and fund its operations to achieve break-even or profitability, said aviation consultant Mark Martin, chief executive of Dubai-based Martin Consulting LLC. “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.”