Lenders to Jet Airways may become the largest shareholders under a new provisional debt resolution plan that was approved by the cash strapped airline’s board on Thursday. The deal will be crucial for its survival and will give it much needed funds.
The full service carrier, which reported a loss of Rs 588 crore in October-December, its fourth straight quarterly loss, said its board of directors have considered and approved bank-led provisional resolution plan (BLPRP), received from the State Bank of India, appointed as a lead lender by a consortium of domestic lenders.
The BLPRP estimates a funding gap of Rs 8,500 crore, including proposed repayment of aircraft debt of Rs 1,700 crore, which will be met via a mix of equity infusion, debt restructuring, sale and lease back/refinancing of aircraft, among other things.
The BLPRP will now be presented for the consideration by the consortium of lenders, the overseeing committee of Indian Bankers’ Association, the board of directors of Etihad and the promoters of Jet Airways. After that, the implementation of the final bank-led resolution plan will take place under the guidance of a monitoring agency.
Currently, promoter Naresh Goyal owns 51 per cent stake in the ailing carrier, while Etihad holds a 24 per cent stake. The airline has a debt of over Rs 8,000 crore.
Jet Airways has scheduled an extra ordinary general meeting (EGM) of shareholders on February 21, to get their approval to convert debt into equity. Once the board approval is received, the lenders’ debt will be converted to equity, which will then make the lenders the largest shareholders in the airline.
“Upon the company receiving the requisite approvals from shareholders at their meeting scheduled to be held on February 21, 2019; conversion of lenders’ debt into 11,40,00,000 shares of Rs 10 each by allotment of such number of equity shares to the lenders that would result in the lenders becoming the largest shareholders in the company,” Jet Airways said in a notice to stock exchanges.
Under RBI regulations, lenders can convert debt into equity at Rs 1 when the book value per share of a company is negative.
Once the shareholders approve the plan, the board structure will also change, since the lenders' nominees will also then have to be appointed on the board of directors.
Jet Airways on Thursday reported a net loss of Rs 587.77 crore for the quarter ended December 31, versus a loss of Rs 1,297.46 crore in July-September and a profit of Rs 165.25 crore, in the year ago quarter.
Its revenue from operations stood at Rs 6,147.98 crore, compared with Rs 6,086.20 crore, a year ago.
India’s aviation industry has seen strong passenger volume growth in recent years, but cut-throat competition led by low cost carriers has kept fares low, which coupled with rising expenses has hurt Jet Airways.
The airline noted that its current liabilities exceed current assets by Rs 9,610 crore and it has defaulted in repaying the working capital loan instalments, including interest due to Indian banks, which has partly been paid in January 2019 and there are substantial payments overdue to creditors.
“These conditions together with four successive quarters of losses due to high fuel prices and fluctuating currency rates, coupled with tight liquidity conditions pose serious challenge to the company indicating the existence of material uncertainty that may cast significant doubt on the company's ability to continue as a going concern,” the airline said.
Before the announcement of the earnings and the board decisions, Jet Airways shares closed up about 1 per cent at Rs 225.80 on the BSE.
