After getting no acceptable offers from Etihad Airways and Hinduja Group, the SBI-led consortium decided to file for insolvency proceedings
Pilots’ union too plans to take Jet to NCLT over non-payment of salaries
Mumbai: Lenders to Jet Airways (India) Ltd on Monday decided to start bankruptcy proceedings against the grounded airline, all but ending hopes of a recovery.
The consortium of lenders, led by the State Bank of India (SBI), chose to refer Jet Airways to the National Company Law Tribunal (NCLT), the state-run bank said in a statement.
“A meeting of lenders was held today to consider the way forward in respect of Jet Airways. After due deliberations, lenders have decided to seek resolution under IBC (Insolvency and Bankruptcy Code, 2016) since only a conditional bid was received and requirement of the investor for Sebi exemptions and resolution of all creditors is possible under IBC," the statement said.
“Lenders led by State Bank of India have been taking efforts to find a resolution for Jet Airways outside IBC but in view of the above, lenders have decided to seek a resolution within the IBC process," the bank said.
A senior banker involved in the discussions said one or two parties have indicated their interest in Jet Airways once it reaches the bankruptcy court although they did not offer any assurance. The banker requested anonymity.
Mint was the first to report on 11 June that London-based Hinduja Group had decided to halt negotiations to buy a stake in Jet Airways, while Etihad Airways of Abu Dhabi put on hold a plan to add more investments in the Mumbai-based airline.
“They cannot invest at ₹150 or ₹200 per share in this company. When they are putting in money, then they need to know if it is safe," said the banker.
Last week, two operational creditors, Shaman Wheels Pvt. Ltd and Gaggar Enterprises Pvt. Ltd, filed separate insolvency pleas against Jet Airways at NCLT, Mumbai, for recovery of their dues.
“The onus of settlement cannot be on lenders. We can settle our dues. But we cannot settle operational creditors. So, one more option was Section 230. For that, if everybody agrees, i.e, 75% technically agrees, you can file a scheme for arrangement. But the option of dissenting lenders to take the company to NCLT would still remain," said the banker cited earlier.
The pilots’ union of Jet Airways, National Aviator’s Guild, also plans to file a plea against the grounded airline at NCLT for non-payment of salaries and not providing a provision for gratuity payment to its staff.
Aviation analysts said it is unlikely that the lenders will be able to recover a substantial portion of their dues by referring the airline to NCLT.
“Jet Airways doesn’t have many assets left as most of their aircraft were inducted on a sale and leaseback mechanism," said an analyst at a foreign brokerage, requesting anonymity. “The properties owned by the airline are also mortgaged as security for loans."
Jet Airways owns about 13 aircraft, including 10 Boeing 777s and three Boeing 737 aircraft, most of which are mortgaged to financers, said Mark Martin, founder and chief executive officer of aviation consultancy firm Martin Consulting.
“Since these planes are old, lenders can raise at least $40-50 million per aircraft by selling the Boeing 777 aircraft owned by the airline," Martin said.
A brand new Boeing 777 has a list price that ranges from $300 million to $400 million depending on its make and specifications, according to Boeing Co.’s website.
The Export-Import (Exim) Bank of the US could, however, initiate proceedings to take back at least six planes it financed for Jet Airways. This could worsen the situation for the Indian lenders to recover their loans.
“At present, Exim has not taken steps regarding deregistering of the six Boeing aircraft. Exim continues to seek a full recovery of the remaining debt owed," a spokesperson said.
Queries sent to Jet Airways seeking comments on the decision of lenders to approach NCLT to recover their dues didn’t elicit a response till press time.
“In the current situation, it is very unlikely that Jet Airways will get a buyer as a going concern, so most likely it will be liquidated," said Ravi Kini, managing partner at M.V. Kini and Co. “The money received from the asset sale will be distributed as per the waterfall mechanism provided in Section 53 of the Insolvency and Bankruptcy Code, 2016."
A second banker aware of the discussions at Monday’s meeting said none of the bids received for Jet worked out owing to the range of haircuts sought by bidders, among other issues.
The banker, who requested anonymity, said that net present value of the loan will be eroded over time and bankers expect that a quicker resolution process under IBC could help protect the value of the asset.
With the company now going to NCLT, lenders may be able to recover only a fraction of the ₹8,400 crore it owes them. The total liabilities of the airline, including unpaid salaries and vendor dues, are nearly ₹15,000 crore.
Jet Airways’ lenders, led by SBI, have been trying to resolve the insolvency crisis at the airline outside NCLT due to fear of little or no recovery. Under the bank-led resolution process, Etihad, which owns a 24% stake in Jet Airways, had earlier agreed to invest in the airline, provided it remained a minority investor.
Jet Airways hasn’t flown since 17 April after it grounded all its operations due to a severe cash crunch.
Shares of Jet Airways fell nearly 17% on Monday to ₹68.30 on the BSE, widely underperforming the benchmark Sensex’s 1.25% fall. The shares have fallen 82% in the past 12 months, compared with a 9.6% rise in the Sensex.