Mumbai: Jet Airways (India) Ltd on Thursday approved a bailout plan that would allow its domestic lenders, led by State Bank of India (SBI), to convert their loans into equity, making them the largest shareholders of the cash-strapped airline.
Jet Airways, meanwhile, reported its fourth straight quarterly loss, adding to the woes of the carrier hammered by higher costs and fierce competition from budget airlines.
In the three months through December, the airline plunged to a loss of ₹587.77 crore, from a net profit of ₹165.25 crore a year earlier. The earnings however topped the ₹643.3 crore loss forecast in a Bloomberg survey of three analysts.
Expenses during the quarter rose 12% to ₹6,786.15 crore from a year earlier. It included fuel costs of ₹2,387.72 crore, a 30% increase from the year earlier.
Post the board decision, Jet Airways would seek approval from its shareholders in an extraordinary general meeting on 21 February to convert the debt into 114 million shares and allot them to the lenders.
The proposal to convert loans into equity was made after the Mumbai-based carrier defaulted on payments, including interest to the banks in December. Jet Airways had a gross debt of ₹8,411 crore as of end-September including aircraft debt of ₹1,851 crore.
Jet Airways has been struggling with cash flows for the past six months because of rising fuel costs. The cash crunch forced the airline to delay salaries to pilots and interest payments on its debt.
“We are indebted to our employees who, despite our interim challenges, have worked tirelessly to ensure the highest levels of operational reliability and customer services for our guests, in line with our core values," Jet Airways’ chief executive officer Vinay Dube said in a statement.
The bank-led provisional resolution plan (BLPRP), approved by the board, proposes restructuring under the provisions of the Reserve Bank of India (RBI) in order to meet a funding gap of nearly ₹8,500 crore.
The gap is to be met through a mix of equity infusion, debt restructuring, sale, sale and leaseback, and refinancing of aircraft, among others.
“Jet Airways continues to make steady progress on its operational and financial turnaround and with today’s approval of the bank-led provisional resolution plan by the board of directors of the company, we remain confident of delivering a more strategic, efficient and financially viable airline," Dube said.
At the EGM, shareholders would also vote on a proposal to raise its authorized share capital from ₹200 crore to ₹2,200 crore through a special resolution.
“The BLPRP envisages the company receiving the requisite approvals from shareholders at their meeting scheduled to be held on 21 February 2019 for conversion of lenders’ debt into appropriate equity shares that would result in the lenders becoming the largest shareholders in the company, and, appointment of lenders’ nominees to the board of directors of the company under the provisions of the RBI Circular," Jet Airways said in a statement.
Additionally, the BLPRP also envisages sanction of interim credit facilities by domestic lenders on terms to be agreed as well as the appropriate governance structure, including the board composition, in accordance with applicable statutory and regulatory requirements, the airline said.
The BLPRP will be presented to the banks, an overseeing committee of the Indian Bankers’ Association, the board of Etihad Airways PJSC, which owns a 24% stake in Jet Airways, and the airline’s promoter and chairman Naresh Goyal, it said, adding that implementation of the BLPRP is subject to receiving regulatory and other approvals.
Meanwhile, Jet Airways’ revenue in the December quarter fell to ₹6,198.38 crore from ₹6,207.83 crore a year earlier. The figure missed Bloomberg’s survey of three analysts which had expected the airline to report revenue of ₹6,450.4 crore.
Analysts tracking the sector attributed Jet Airways’ loss in the latest quarter to high costs and its inability to match fares offered by budget airlines.
“The aggressive pricing strategies adopted by budget carriers have hurt Jet Airways adversely once again this quarter," said an analyst with a foreign brokerage.
The airline trimmed total capacity during the December quarter.
To cut costs, it either shut or reduced flights to unprofitable routes in the quarter. Also, a few lessors have also sought to repossess their planes after the airline failed to pay lease rentals.
Jet Airways carried 7.17 million passengers in Q3, a 6.9% decline from the year earlier.
“The movement of capacity to hubs enhanced choice and comfort for guests but also led to a minor and interim decline in ASKM (2.6%), RPKMS (3%) over Q3 FY18. The shift also impacted cargo revenues in the interim, which contracted 5.5%, despite an impressive growth in yields by 14%," it said.
ASKM is average seat per kilometre and RPKMS is revenue passenger kilometres. Both are unit measurements for airlines.