Jet Airways promoters close to deal with SBI-led consortium of lenders

The promoters of Jet Airways are close to striking a deal with a consortium of their lenders, led by SBI, to get the troubled firm out of financial stress. The lenders have agreed in principle to convert part of their loans into equity under the proposed debt restructuring plan, banking sources said.

Jet had a debt of around Rs 82 billion as of September-end. The sources said details of the equity restructuring were still under discussion and various formulae were on the table. Banks are prodding Jet founder and chairman Naresh Goyal, who owns 51 per cent of the airline, to bring his stake to 25 per cent or below by partly selling it to Etihad Airways. This will ensure Goyal does not have the power to veto any special resolution passed by the board of directors.

Under the Companies Act, promoters require at least 25 per cent stake in a firm, plus one vote, to do so. 

Jet's promoters are also in discussion with Etihad, seeking an increase in stake by the Abu Dhabi-based airline from the current 24 per cent to up to 49 per cent — the maximum permitted for airlines under the government’s foreign direct investment rules. According to another proposal that is also under discussion, the banks would, after the conversion of debt into equity, have a 16 per cent stake, while Etihad will raise its stake between 34 per cent and 37 per cent, and Goyal will bring his down from 51 per cent to the same level as Etihad. 

The West Asian airline is expected to play a more active role in the business and run the company jointly with Goyal, who will continue to have a significant say. A top management team from Etihad is in India and is having discussions with the management of Jet. Sources said the two airlines had sought an appointment with Prime Minister Narendra Modi. 

Responding to an e-mail, a spokesperson for Jet Airways said, “In line with its policy, Jet Airways does not comment on speculation.” An Etihad spokesperson said, “Etihad does not comment on rumours or speculation.” Sources said Jet might also approach the Ministry of Civil Aviation for an exemption to an open offer. “Jet and Etihad are likely to seek the exemption on grounds that the company is financially sick and exemptions can be provided under law, citing that this is in larger interest of the minority shareholders,” said a person aware of the development.

An offer is triggered if an acquirer buys at least 25 per cent in a target company or if a significant change in management control is effected due to the stake sale. In a meeting with pilots a few days ago, Jet CEO Vinay Dube said the airline would bring on board a new investor in two to three months. Jet executives point out that while the company has been in the “watch list”, it has not defaulted on any payments to banks despite speculation in the market, and has remained a “standard account” with the lenders. So, there is no question of it being referred to the Insolvency and Bankruptcy Code (IBC) as per the February 2018 notification of the Reserve Bank of India on resolution of stressed assets. Even in cases of default, the RBI has permitted a 180-day window for banks to restructure their loans or the borrower pays the defaulted amount, failing which it has to be referred to the NCLT for resolution.

The Jet deal, if it gets through, will not be the first one in the airline industry where the lenders have converted their debt into equity. In 2011, in the case of Kingfisher Airlines, the lenders had converted a debt of around Rs16 billion at a premium of 60 per cent, giving the airline a lifeline and the consortium of banks a 23 per cent stake. But that did not help the airline in the long term as it shut down operations in 2013.

For Etihad, a larger stake in the full-service carrier in India fits in well with its global strategy, especially as it is fighting a bitter battle for supremacy in the west Asian skies with Emirates and Qatar Airways. India is an attractive market as 40-50 per cent of the passengers from India to the west Asian hubs go onwards to the US and Europe. However, Etihad has to do some catching up with Emirates as well as combat a more aggressive Qatar. With a market share of 9.2 per cent (in 2017-18) of the international traffic in and out of India, Emirates carries more than double the number of passengers compared to Etihad (a market share of 4.3 per cent ) and is just ahead of Qatar (3.3 per cent). But Jet is still the second-largest international carrier from India with a market share of 13.8 per cent, a strength which Etihad can leverage to fly more Indians to west Asia and beyond. Also, Etihad, say analysts, can utilise the unused bilateral seats from India to Abu Dhabi (less than half of the 50,000 seats a week are utilised).