Brand to bank loans: It will be win some, lose some for Jet's new owner

As the curtains for showing expression of interest to buy Jet Airways come down on Wednesday, a buyer, if found, will get some tangible as well as intangible assets with the cash-strapped airline.

Jet Airways owns over 16 aircraft of its 119 fleet. This includes 10 Boeing 777, three 737, and three A330. The lenders have valued the wide-bodied Boeing 777 and the three 737s at around Rs 4,600 crore. The new owner can go for a sale and leaseback of the planes and generate the requisite funds to operate the airline.  

As part of the proposed restructuring process, banks have considered the planes as security against their fund-based loans as well as non-fund based (in the form of bank guarantees, letter of credit, etc) lending to the company.

Lenders will be increasing their exposure to the airline by over Rs 3,000 crore, from Rs 5,778 crore. This includes fresh infusion of loans as well as non-fund based guarantees and fresh equity.  

The new owner will, of course, have to get banks to release the security pledge on the planes by paying back their dues in order to be able to sell them.  

The potential winner will also have 50 per cent of the airline’s shareholding in Jet Privilege — the loyalty programme company, which banks have valued at Rs 1,300 crore.

But even these shares are proposed to be pledged against banks’ fresh lending to the airline as part of the restructuring exercise.

Of course, Jet’s branding could also be a valuable asset for anyone who operates the airline. In 2017, it was ranked amongst the top 200 most influential brands by Richtopia, a global digital platform, and was the only Indian brand on the list at 109. Experts say its brand value has seen substantial erosion in the past one year and no assessment has been done on its intrinsic value.

Jet also has valuable slots across the world as it flies to 20 destinations internationally and 45 domestic cities. It also has around 12 per cent of the passenger share in the international market in the quarter of December 2018, lower than that of Air India’s, including its subsidiaries.

For instance, in Mumbai where there is no fresh capacity available, there are no new slots on offer, especially at peak hours. However, the slots in India cannot be monetised by Jet as they belong to the airports. Airports have already started to give the slots not in use by Jet to other airlines temporarily till July.  

In Heathrow, slots can be sold. But Jet’s three slots in Heathrow have already been sold by Jet to Etihad for $70 million and leased back.  

Jet Airways has 22,000 employees, compared to 26,000 of Air India and their salaries constitute for over 13 per cent of their revenues (based on FY16-17 figures).