Jet Airways under lens over results deferment; Sebi looking into the matter

The beleaguered airline is seeking $150 million in debt from UAE-based carrier Etihad, which owns a 24% stake in Jet, to tide over its financial crisis

State Bank of India (SBI), the country’s largest lender, put Jet Airways’ loans on the watch list and the civil aviation ministry said it was monitoring the situation at the airline after it deferred its first quarter financial results on Thursday.

The capital markets regulator Securities and Exchange Board of India (Sebi) was also looking into the deferment of results on account of reservations expressed by the airline’s audit committee, according to a PTI report. Sebi is concerned about any possible lapses in terms of disclosures and corporate governance norms by Jet Airways. The regulator is in touch with the stock exchanges on the matter.

The beleaguered airline is seeking $150 million in debt from UAE-based carrier Etihad, which owns a 24 per cent stake in Jet, to tide over its financial crisis. Etihad had earlier helped Jet secure loans from financial institutions in West Asia and also provide corporate guarantees for the debt. A source in the know said there had been a discussion between the two airlines for the funding, but added that Etihad was unlikely to offer a loan given its own financial problems.

“As a minority shareholder Etihad continues to work constructively with the Jet Airways board, promoter and management team,” the airline said in a statement. “Like all organisations, Jet Airways continues to evaluate financing opportunities and has been in dialogue with both Indian and international banks.”

In its defence on the deferment of results, the airline told the stock exchanges that the management had asked the audit committee for more time to finalise accounts, which was granted. The management was directed to place the finalised accounts before the audit committee thereafter, it said.

The airline also said the term of independent director S Vishwanathan, who was also the chairman of the audit committee, expired on August 9.

A source said there were differences between the airline and its auditors on issues such as qualification of accounts as a going concern. The airline, however, denied it.

In a statement, a spokesperson for the airline said:  “Your query for audit firm BSR & Co that Jet Airways is not a going concern is totally baseless and completely incorrect. BSR & Co continue to be the auditors for Jet Airways.” 

BSR & Co, one of the two statutory auditors, declined to comment citing client confidentiality.

The airline stock tanked 8.4 per cent on Friday, and the developments led SBI Chairman Rajnish Kumar and Civil Aviation Secretary R N Choubey to express concerns about the airline’s health. Responding to queries after SBI’s June quarter results, Kumar said, “We have exposure to the airline.” While he declined to specify the status of account, he said Jet was on one of the lists – watch list, special mention account 1 (repayment due for 30-60 days), and special mention account 2 (repayment due for 60-90 days).

Meanwhile, Choubey said the government was watchful of developments in the airline. “Jet has not approached us as yet; it is not bound to inform us. But when airlines get into difficulty, they normally come to us. There are a couple of things which we are doing and the Directorate General of Civil Aviation will also be looking at,” Choubey said at an industry event.

Jet Airways, the country's second-largest domestic airline by market share, has been struggling to make money in a tough environment. Public sector bankers have been wary of granting it fresh loans, saying the account was stressed due to various factors like over-leverage, huge repayment burden and pressure on revenues due to intense competition. The airline had a debt of Rs 81.5 billion as of March end and had repayments worth Rs 31.20 billion due in the current fiscal.

According to a Bloomberg report, the probability of Jet Airways failing to repay its obligations in the next 12 months is near the highest since October 2015 based on its default risk model, which tracks metrics including share price, debt and cash flow.

Responding to a query on results deferral, Jet said the audit committee gave more time to the management to finalise the accounts. The company said, “At the board meeting, the chairman of the audit committee informed members of the board that the management required further time to finalise the accounts. The accounts once finalised would be approved by the audit committee and then placed before the board. The members of the board agreed with this.”