Tatas confirm talks to buy Jet Airways; lenders to back the acquisition

The Tata Sons board on Friday discussed the proposal to buy a stake in struggling private carrier Jet Airways but did not take any decision on the acquisition.

The meeting, held at the Tata group headquarters, Bombay House, went on till late afternoon. Sources said the board was informed that the deal might take time as it was a complex transaction involving several stakeholders, including Etihad Airways, which owns 24 per cent in Jet Airways, and Singapore Airlines, which is Tata’s joint venture partner in Tata SIA Airlines.

Tata Sons said there had been growing speculation in the print and electronic media about the group's interest in Jet Airways.

“We would like to clarify that any such discussions have been preliminary and no proposal has been made,” Tata Sons said in a statement after the meeting. Jet Airways is facing liquidity problems and has delayed payments to employees and vendors. The airline has reported three consecutive quarters of net loss.

Besides Vistara, owned by Tata SIA, the Tata group runs AirAsia India in partnership with Malaysia’s Air Asia. Meanwhile, the Tatas' plan to acquire a controlling stake in Jet Airways has met with approval of the government-owned lenders, who plan to back the bid even though they will have to take a haircut on the airline’s Rs 84-billion debt. Sources said banks wanted the Tata group to take over the airline as the present management was finding it difficult to pay its suppliers and employees.

“There is no default on bank debt as yet by Jet, but banks are jittery and don’t want any repeat of Kingfisher Airlines,” said a source.

“Besides, a higher credit rating for Tata Sons as compared to Jet Airways is a confidence booster for lenders,” he added. In October, rating firm ICRA had downgraded Jet Airways’ debt to “B-“, saying the rating downgrade was due to delays in the implementation of the proposed liquidity initiatives by the management, which further aggravated its liquidity strain. The company continues to witness deterioration in its operating and financial performance because of the steep increase in jet fuel prices and rupee depreciation and its inability to pass on the same to the customers.

"Tata Sons’ “AAA” rating and its zero default track record is giving confidence to banks," said a source, adding that the Tatas paid off Rs 240 billion of its telecom debt to banks even though they made huge losses in the sector.

A senior executive with a Mumbai-based lender said haircut was the key element, but it could not be standalone for banks. It will have to be part of a restructuring package that will cover specific terms and conditions including obligations of owners, he added. Asked if package could be hammered under National Company Law Tribunal, he said these are matters of details and it is too early for decision on this count.

On Thursday, Bloomberg reported that the Narendra Modi government had also sought Tata Sons’ help to rescue the airline. It said the Tata group was in talks about a potential haircut to state-run banks on Jet’s loans while Airport Authority of India (AAI) might forgo some of its dues, it said. Two weeks ago, the AAI had sent a letter to Jet Airways, asking it to pay its dues. With both Jet and Tata Sons having common lenders, the debt that would get transferred to the Tatas (after any haircut), would be at much lower rates due to their better credit ratings. Lenders also cited the recent takeover of Bhushan Steel by Tata Steel where the banks took a steep haircut but the upfront payment was immediately made by the Tatas as per the timelines.

Lenders are also taking note of the warning signals issued by analysts after Jet’s recent results announcement for the quarter ended September. In a note, Edelweiss said that with yet another quarter of Rs 10 billion-plus loss, the net worth of the airline had deteriorated to negative Rs 98 billion. “The scheduled debt repayment of Rs 20 billion in the second half of fiscal 2019 makes matters worse. Although Jet Airways has been managing positive cash flow through delays in vendor payments/higher lease incentives, these measures are not sustainable and will fall short, in any case. Any default on debt would lead to lenders dragging the company to NCLT (National Company Law Tribunal), resulting in a potential shutdown of operations,” wrote Jal Irani of Edelweiss on Wednesday.  “In the absence of a fund infusion/divestment, Jet Airways may default on the upcoming debt repayment. However, the entry of a strategic buyer may alleviate some of these concerns in the near term,” Irani added. Bankers said that with the government taking a keen interest in a Tata takeover, the stage is set for the acquisition of the airline outside of the Insolvency and Bankruptcy Code process.

The Tatas are in talks to buy a majority stake from Jet Airways Chairman Naresh Goyal, who owns 51 per cent in the airline, and merge their full-service airline Vistara with it. The merger will result in the merged entity getting 20 per cent of the market, according to trailing 12-month data ending September 2018.