Crisis deepens as Jet Airways stares at another default of $109 million

Jet Airways could be staring at another default of $109 million, which it has to pay by March 28 to the HSBC Bank Middle East as the second tranche of the $140-million loan it had taken in 2014 and for which the Abu Dhabi-headquartered airline stood guarantor. Jet had, on March 11, defaulted on its external commercial borrowings of $31 million, payable to HSBC and guaranteed by Etihad Airways, which owns 24 per cent in Jet.

Jet, in a letter to HSBC on March 11, had said it is going through a severe liquidity crunch and is working on a bank-led resolution plan for its revival. The plan, it has told the bank, is in the final stages of seeking regulatory and corporate approvals and, pending these approvals, “the company is unable to repay tranche A of $31 million” to the bank.

Etihad and Jet did not respond to queries. Sources, however, said Etihad has protected its interests (as guarantor) because in the memorandum of understanding between Jet founder Naresh Goyal and it, the firm incorporated a clause under which prior to interim financing Jet had to pledge 15 per cent of its shares in JetPrivilege — the loyalty programme unit — in favour of HSBC as security for the $140-million loan. 

JetPrivilege, in which Jet has 49.9 per cent (Etihad has 50.1 per cent), according to estimates, has an enterprise value of around Rs 4,000 crore. 

 

The airline, which has grounded 59 (nine of them on Tuesday and Wednesday) planes, constituting over 40 per cent of its fleet, needs a fresh infusion of cash immediately.

The bank-led interim financing plan envisaged an infusion of Rs 4,000 crore by stakeholders.

But the plan that Etihad would put in Rs 750 crore as its share of the financing arrangement by early this week, after which the lenders will put in a matching amount, has been delayed as the final go-ahead is pending from the foreign carrier. 

The loan deal was signed between Jet and HSBC in January 2014 and restated by an amendment in March the same year. The $140-million loan was drawn by the airline in two tranches on March 5 and March 27, 2014, for five years with bullet repayment obligations at the end of the fifth year.

According to a senior banking official representing the lenders, Etihad has not communicated to them its decision as to when it will disburse its share of the interim funding or if it needs more time. 

Goyal, in a recent communication to Etihad group Chief Executive Officer Tony Douglas, had made it clear the Abu Dhabi-based carrier must infuse Rs 750 crore urgently. 

Last week, Goyal and Etihad entered into a deal, spelling out the equity contributions of the partners, ownership and board structure. The deal was agreed upon after months of disagreement between the two on shareholding and control issues.

As part of the lenders-led resolution plan, Etihad is expected to infuse Rs 1,600-1,900 crore for 24.9 per cent (up from 24 per cent). Lenders, led by SBI, would infuse Rs 1,000 crore for 29.5 per cent and the proposed new investor — National Investment and Infrastructure Fund — would bring in Rs 1,600-1,900 crore for 20 per cent. Goyal’s ownership would fall from 51 per cent to 17.1 per cent.