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Jet Airways lenders seek crisis funding as Etihad bargains hard

State Bank of India chief says resolution plan for airline almost ready

Naresh Goyal, chairman of Jet Airways, at a news conference in Mumbai in November 2017   © Reuters

MUMBAI – Lenders and controlling shareholders of debt-laden Jet Airways are in talks with investors to bring them on board as a last-ditch effort to save one of India’s largest airlines, while reports claimed that major shareholder Etihad Airways would seek to exit if its conditions were not met.

The airline, controlled by non-resident Indian businessman Naresh Goyal, has cancelled about a third of its fleet and is facing severe pressure from employees, agitated passengers, as well as lessors. Pilots have threatened to stop flying from April 1 if their salaries are not paid by the end of March.

The situation has moved the government to hold an emergency meeting with Jet Airways executives to work a way out of the crisis.

Lenders, including the State Bank of India, have been holding meetings since Tuesday to rescue the airline, which owes them over 80 billion rupees ($1.1 billion). Sources said banks are still in favor of a resolution led by them but are debating if an immediate fund infusion is possible. The pressure on the banks was further heightened after Etihad Airways reportedly threatened to pull out of the airline.

After a meeting with other lenders, State Bank of India Chairman Rajnish Kumar told reporters on Wednesday that discussions with Etihad is still ongoing and its exit was not yet certain. "Not all hopes are lost on Jet Airways," he said, adding that it was in everyone's interest that the airline continued to operate. 

Local business daily Economic Times has reported that Etihad CEO Tony Douglas revealed his decision to exit Jet Airways on Monday and that the company wanted to take over “its liabilities in the form of a guarantee for Jet’s loan from HSBC Dubai. Etihad has also offered its 50.1% stake in Jet Privilege to SBI,” referring to State Bank of India. Jet Privilege is a subsidiary of Jet Airways. According to some media reports, Goyal is meeting officials of Qatar Airways to seek investment in Jet. 

The government will try hard to bail Jet Airways out, faced with an election less than a month away. Kumar also said that insolvency and bankruptcy proceedings would be the last option.

Shares in the airline dropped 7% in morning trade on the Mumbai bourse.

The fresh crisis follows a resolution plan suggested by Goyal on March 8 to Etihad Airways asking for an infusion of 7.5 billion rupees. Failure to do so, Goyal warned, will be "severely deleterious [for] the future of the airline, leading to its grounding."

Jet Airways has been struggling under mountains of debt and mounting losses as fierce competition in India's aviation industry continues to push fare prices lower and squeeze margins. But Etihad Airways is concerned about some issues, particularly in relation to the Goyal family's future role in Jet Airways.

Under the rescue plan, Etihad Airways was asked to inject between 16 billion and 19 billion rupees worth of equity into Jet Airways, which would increase its share holding to 24.9% from the current 24%, while lenders including State Bank of India would infuse 10 billion rupees for a 29.5% stake. A new investor will bring in another 16 billion to 19 billion rupees.

Furthermore, Goyal, would step down as chairman of the board and be designated chairman emeritus, and his family's maximum stake would be capped at 22%. Etihad has made his removal as chairman a requirement for bailing out the Indian company, though Goyal has been fighting this.

Another sticking point for Etihad Airways is the board structure being discussed -- with two nominees from Etihad and Jet Airways each. Etihad felt the equal representation from both sides erodes any power it had over Jet Airways.

Etihad itself is going through a rough patch after posting losses for the past two years. Two European airlines Etihad had invested in -- Alitalia and Air Berlin -- have filed for bankruptcy protection.

Jet Airways shareholders have voted in favor of a takeover by a group of lenders and of a capital increase that would steady the company's finances as it seeks a return to earnings growth. Under a debt-for-equity deal approved by the airline's board on Feb. 14, banks led by State Bank of India will take a 51% stake in the carrier. The debt-for-equity swap, which will entail an issue of 114 million new shares, is expected to fill a funding gap of around $1.2 billion, but the deal depends on Etihad board's approval.

Jet Airways has been battling high fuel prices, a weakening rupee and intense competition that pushed down fares. Employees and aircraft leasing companies have gone unpaid for several months. The airline on Feb. 14 reported its fourth consecutive quarterly loss -- 5.88 billion rupees in the October-December period.

In August, the carrier embarked on a plan to cut costs by 20 billion rupees over the next two years. Fresh equity infusion was part of the plan.

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