Jet Airways won’t get 5 Boeing 737 Max planes until its financial crisis is over

Mumbai: Lessors to Jet Airways (India) Ltd are holding on to deliveries of five new Boeing Co. 737 Max planes until the cash-strapped carrier overcomes its financial woes, a person with direct knowledge of the matter said.

“Boeing has released 10 B737 Max aircraft for Jet Airways. Since they have been bought under the SLB (sale and lease back) arrangement, the lessors have five aircraft with them while the airline has five aircraft. This will be returned to Jet Airways once their financial condition stabilizes,” the person, who did not want to be named, said.

The person did not disclose the names of the lessors.

The carrier has ordered 225 737 Max planes so far.

Jet Airways has been struggling with cash flows for the past six months due to rising fuel costs and intense competition. It has delayed payment to lessors, airport operators, oil marketing companies and a part of its staff to keep the company running.

Jet Airways chief executive Vinay Dube had in 2018 said the airline expects to have 11 Boeing 737 Max planes in its fleet by March 2019.

Jet Airways also owns about six wide-body aircraft, which it can sell to raise as much as $300 million, the person said.

“Jet Airways can get up to $50 million for each of its six wide-body aircraft which it can utilize to retire debt,” he added.

Jet Airways chief financial officer, Amit Agarwal, last week told analysts that the airline has identified potential buyers for a mix of sale and SLB of a total of 16 planes that the airline owns, including the wide-body planes.

Proceedings from the sale will be utilized to service debt, Agarwal said.

The Mumbai-based airline currently has a fleet of 123 planes, according to its website. Of these, it owns 16 aircraft, mostly wide-body planes with the remainder on sale and lease back model.

A sale and leaseback is a transaction in which the owner sells the aircraft, and then takes it back on lease from the buyer. This kind of deal typically removes the aircraft, and its associated debt, from the carrier’s balance sheet.

Jet Airways has convened an extraordinary general meeting (EGM) of shareholders on Thursday to decide on a proposal to convert a portion of its large debt into equity. Jet Airways had a gross debt of ₹8,411 crore as of end-September including aircraft debt of ₹1,851 crore.

The banks-led Jet Airways bailout plan, approved by the board of Jet Airways on 14 February, proposes restructuring under provisions of the RBI 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, SLB, and refinancing of aircraft, among others.

The Jet Airways bailout plan approved last week would allow domestic lenders, led by State Bank of India (SBI), to convert their loans into equity, making them the largest shareholders of Jet Airways.

Jet Airways promoter and chairman Naresh Goyal, Etihad Airways and the airline’s lenders will subscribe to a rights issue as part of a resolution plan.

The decision to raise funds through rights issue comes after the domestic lenders decided to convert existing debt into 114 million shares at a consideration of ₹1, according to Reserve Bank of India (RBI) norms.

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Following the debt conversion, lenders will pick up more than 50% stake and the equity holding of Goyal and Etihad will halve to 25% and 12%, respectively. Goyal and Etihad currently own stakes of 51% and 24% in Jet Airways, respectively.

At the EGM, shareholders of Jet Airways will also vote on a proposal to raise its authorized share capital from ₹200 crore to ₹2,200 crore through a special resolution. The proposal from Jet Airways also contains a plan to give lenders the right to nominate one or more members on the board, post conversion of debt into equity.

On Wednesday, Jet Airways shares rose 0.65% to ₹232.95 apiece on the BSE while the benchmark Sensex gained 1.14% to end the day at 35,756.26 points.