Jet Airways' 18 aircraft engines held back in Singapore over unpaid dues

With mounting losses, Jet has defaulted on lease and vendor payments. Its lessors are contemplating repossessing the planes they had lent
As many as 18 CFM56 engines belonging to Jet Airways have been held back by a maintenance, repair and overhaul (MRO) unit in Singapore over unpaid dues.

The engines power Boeing 737 aircraft and are stuck at ST Engineering’s MRO for months. The latter is demanding $125-150 million (Rs 880-1,060 crore) in dues be cleared before these are released, industry sources said.

With mounting losses, Jet has defaulted on lease and vendor payments. Its lessors are contemplating repossessing the planes they had lent. The MRO development highlights the airline’s serious cash shortage. This has led to the grounding of some planes and in the network. Jet has 123 planes, including 86 of the Boeing 737. Part of the latter are five of the new 737 Max, inducted last year.  

The 737 Max are powered by CFM Leap-1B engines; the plane’s earlier variants use CFM56 engines. 

The airline has been able to keep a majority of its 737s operational because of spare engines in its kitty. Delays in fundraising and action by lessors could lead to more disruption. The airline has Rs 1,700 crore of loan repayment due till March and the creditors and vendors are stepping up pressure. 

Jet says its operations remain normal and it is engaged with all stakeholders, with whom it has shared a comprehensive business plan. “The shared plan envisages four key pillars of disciplined growth, competitive cost structure, rejuvenation of customer experience and a restructured balance sheet. It is expected to deliver a positive impact on the financials, to achieve a sustainable turnaround. Our partners were appreciative of the steps being taken and we continue to be engaged with them in real time,” it said. Also stressing: “The company continues to run normal operations as per its published schedule, with adequate spares and appropriate number of aircraft.” ST Engineering declined to comment when queried by this publication.

Engine components need overhaul or replacing after 20,000-30,000 flight cycles (flights). Apart from the replacement works, the MRO in Singapore also works to restore the  performance of damaged engines.

Jet’s relationship with ST Engineering dates back to 1993 — the airline was founded the same year. The MRO initially provided component services for the airline’s 737 aircraft. 

In 2007, this extended to engine maintenance, with  induction of the CFM56. In 2010, the two sides signed a power-by-the-hour agreement, under which an airline pays a monthly fee to cover all maintenance expenses. New maintenance agreements were signed in 2015 and last August, covering the entire fleet of Boeing 737 NG aircraft and increasing the contract value, from $350 million to $700 million. Sources say the airline has been unable to pay on time and dues have accumulated over time. This is not the first time the airline has delayed paying the Singapore MRO. 

A similar situation  had occurred in 2012; the dues were cleared following Etihad’s acquisition of 24 per cent stake in the airline. Etihad paid a portion of these, later recovered from Jet, a source said.

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