Jet Airways bids set to draw a blank; Etihad to say no, TPG backs out too

All shortlisted bidders, including Abu Dhabi-based Etihad Airways, are learnt to have backed out of the process of investing in grounded Jet Airways.

Etihad was the only airline to have expressed an interest to buy a controlling stake in Jet. The other shortlisted bidders were sovereign fund NIIF and private equity firms TPG Capital and Indigo Partners. With no bidders left in the fray, there’s little hope left for Jet’s revival, said a source. 

“Etihad is not willing to participate in the bidding process as it sees no value left in the airline. It also lacks the financial bandwidth to put money for reviving Jet,” said another source in the know. Etihad didn’t comment on a query till the time of going to press. 

“There’s nothing left in Jet except bank loans,” said an executive tracking the bidding process. There’s no question of anybody submitting binding bids, he said, adding Jet is unlikely to fly now.

The last Jet flight operated on April 17 as the lenders, led by State Bank of India, failed to infuse the committed emergency funds into the airline. Last week, lenders set May 10 as the deadline for concluding the bidding process to revive Jet, which has an accumulated debt of over Rs 8,500 crore, besides dues to various parties including its more than 20,000 employees.

While Etihad, already a shareholder in Jet, was seen as the most promising option to revive the Naresh Goyal-founded airline, the scenario has changed now. In fact, Jet would be the third airline where Etihad will have to write off its investment. Recently, Etihad had written off its 49 per cent stake in Italian airline Alitalia and 29.2 per cent stake in German airline Air Berlin.

In 2013, Etihad had bought a 24 per cent stake in Jet for $379 million, giving the cash-strapped airline a fresh lease of life. This was part of Etihad’s strategy to invest in airlines and make them part of its global plan of aggressive growth. Other such purchases include a 49.8 per cent in Niki, 49 per cent in Air Serbia, 40 per cent in Air Seychelles and 21.8 per cent in Virgin Australia.

Lack of clarity on how much stake was up for sell, and value erosion of Jet are among the reasons cited by Etihad to pull out of the process, a source quoted above said. A formal communication from Etihad to SBI-led consortium is likely this week.

SBI Chairman Rajnish Kumar refused to comment on the matter.

The SBI-led consortium had earlier called for bids for up to 75 per cent of the company. However, with the Supreme Court striking down a key circular which had allowed banks to convert the airline's debt into 51 per cent equity at Rs 1, there was uncertainty around the stake that could actually be sold. Currently, the banks hold only 32 per cent of promoter Naresh Goyal’s stake, which has been pledged to the banks.

"Earlier the plan was to offer 67 per cent stake in the airline, which would have included 51 per cent held by the lenders upon issuance of fresh equity and another 16 per cent pledged by Goyal. Now that is stuck following the SC order and there is no clarity on the issue. This is one of the primary reasons why the bidders are backing out," said person in the know.

Among others, US-based private equity firms TPG Capital and Indigo Partners have not yet started any due diligence, in an indication that they don’t intend to submit a binding bid.

The bidders see it as a challenge to revive the grounded airline, according to multiple people Business Standard spoke to.

With Jet shutting operations, lessors have started replacing their aircraft with other airlines. Also, prime airport slots and flying rights of the airline are being allocated to other airlines leading to significant erosion in its value prospect. Banks had recently asked the ministry of civil aviation to reserve 40 per cent of metro airports for Jet.

“The refusal of banks to provide emergency loan has been a letdown. The funding issue has dragged and investors are not happy. What is left with Jet to sell? Lessors are taking back planes and its pilots are leaving to join rival airlines," a source said.

Last week, Jet CEO Vinay Dube had asked finance minister Arun Jaitley to release Rs 175 crore for employees’ salaries and sought his intervention in protecting airport slots to retain value for prospective investors.

Buyers get cold feet

 
Uncertainty over shareholding: No clarity over stake sale as banks have been unable to convert debt to equity

Value erosion in airline: Buyers see no value in the airline with slots, flying rights, planes, and manpower going away

Immediate liabilities: While lenders agreed to take a large haircut, operational creditors refused


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