Jet Airways stares at shutdown, board meets today as lenders refuse funds

Jet Airways
India’s first private airline Jet Airways is headed towards a total grounding and a decision could be taken as early as Tuesday after a meeting of its board of directors. Left with no cash, a seven-plane fleet and fuel to run operations only till Tuesday afternoon, the end is imminent, said sources close to the development. “Jet cannot be saved now. It’s on the ground,” another source in the know said. 

This follows Monday’s no-consensus emergency meeting of the lenders’ consortium, led by State Bank of India, to decide on infusion of Rs 1,000 crore immediately. Soon after, the suspension of the international operations was extended till at least April 18.  

As lenders failed to infuse the required funds, the Jet management will inform the board on Tuesday morning about the “critical developments” before a call is taken on the future of the airline, according to Chief Executive Officer (CEO) Vinay Dube. 

SBI, which has been at the forefront of the resolution plan, said late on Monday evening that the expressions of interest for buying stake in Jet were being vetted by a legal team and prospective bidders would be shortlisted by SBI Caps soon. “The proposed equity conversion by banks, if any, will be undertaken as a transitory mechanism to facilitate the bidding cum sale process,” the SBI said. 

In a damage control exercise, the bank said that necessary support to facilitate the process was being extended by the lenders in the consortium. “Cooperation by and support from all the other stakeholders will be the key to the success of the process,” it said.

If Jet goes down, it will be the second pan-Indian operator to go belly up. Kingfisher Airlines was grounded in 2013.
The decision not to issue any emergency funding to the airline was taken after an hour-long meeting of the lenders’ consortium with Jet Chief Financial Officer Amit Agarwal. “The consortium refused to release any more interim funding before becoming certain about the credibility of potential investors,” said a person aware of developments. Airline executives said operations were likely to be temporarily grounded as the cash had been exhausted. “First, there is no money left to pay the oil companies for even a day. Second, there is no meaning to continue with skeleton operations as it just adds to the losses,” a Jet executive said. Of the seven aircraft the carrier is operating, five are smaller turboprop planes.

“The interim funding has not been forthcoming thus far. The current status of our engagement with lenders and other related matters shall be placed before the board in the meeting scheduled for tomorrow (Tuesday). The management will seek guidance from the board on the next step forward,” Dube said in an internal communication sent to anxious staff. The message was reviewed by Business Standard.

The likely grounding will put the sale process of Jet in jeopardy, merchant bankers said. The lenders’ consortium had called for expressions of interest to buy a controlling stake (51-75 per cent) in Jet.  Following that, Abu Dhabi-based Etihad Airways, which currently owns 24 per cent stake in the airline, private equity fund TPG Capital, India’s government-owned sovereign fund National Investment and Infrastructure Fund (NIIF), and ousted chairman Naresh Goyal had formally approached the airlines. “It will have to be seen if the buyers are still interested in an airline which has been grounded. The cost of revival goes higher, the airline will lose valuable slots, lessors will repossess aircraft, making the sale difficult,” the merchant banker said. Jet owes around Rs 10,645 crore to operational creditors beside the Rs 8,500-crore bank debts, according to the latest available figures.

Wings clipped

  • After lenders refused emergency funds, the suspension of international operations was extended till at least April 18
  • Consortium refused to release more funds before becoming certain about the credibility of potential investors, sources said
  • State Bank, however, said necessary support to facilitate the process was being extended by the lenders' consortium

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