Multiple suitors, including the existing investor Etihad Airways, may be interested in acquiring a stake in the cash-strapped Jet Airways, but unless the airline receives the much needed emergency funding, it could be heading for a crash landing.
The full service carrier until a few months ago had a fleet of 119 air craft and was the second largest in terms of market share after low-cost carrier Indigo. However, mounting losses and delays in paying back the lessors have led to much of its fleet grounded.
The airline had a debt of Rs 7,654 crore as of December 31, 2018. On March 25, Jet Airways’ promoter Naresh Goyal had agreed to step down as the chairman of the board, paving way for the lenders to gain control of the carrier. As a part of the bank-led resolution plan, it had been proposed that the lenders would immediately inject Rs 1,500 crore into the airline by way of appropriate of debt instruments against security of assets. The funds would help pay salaries to employees, which have been delayed, and also payback lessors to get some of its planes back into service.
However, the lenders have not been able to reach a consensus on releasing the funds. A report said on Friday that less than Rs 350 crore has so far been released. Goyal, who held 51 per cent stake in the airline, has now pledged half of it (26.01 per cent), as a security for loans from Punjab National Bank.
Jet Airways needs funds to carry on day to day operations, else there’s a risk of operations coming to a halt.
Aviation minister Suresh Prabhu has already directed civil aviation secretary to review issues related to Jet Airways and take necessary steps to minimise passenger incovenience.
Meanwhile, Abu Dhabi-based Etihad, which had held 24 per cent stake in the airline, has reportedly submitted expression of interest to buy a stake in the airline. Current regulations prevent a foreign firm to own a majority stake in a domestic carrier. So, there will have to be other partners and lenders are learnt to have sounded off private equity investors too. Private equity firm TPG Capital had earlier shown interest in buying a stake in Jet Airways’ loyalty programme Jet Privilege.
Etihad has so far not responded to a mail seeking comments. TPG too has not officially commented on the matter.
US-based Delta Air Lines, and Air Canada which had codeshare partnership with Jet Airways are also likely to submit their expression of interest in buying into the Indian carrier, say reports. Goyal could also submit his interest in the airline. The deadline to submit expression of interest, which has already been extended, ends on Friday.
The lenders also issued clarifications to the terms and conditions for the bids earlier this week. Lenders will allow an investor to acquire the company on as is where is basis, and thereby effect change in control and management of the company and/ or restructuring of the existing facilities and infusion of funds by way of loans or acquisition of up to 75 per cent of the equity capital.
The troubles at Jet Airways, could in the interim boost its rivals like Indigo. Currently, there are significant number of Jet Airways’ slots that are unused as much of its fleet is grounded, according to industry analysts. Jet Airways had earlier submitted its summer slot plans to the Directorate General of Civil Aviation only for the month of April.
“Post April, when Jet has to resubmit its schedule plan, the private airport operators will be increasingly hesitant to keep such a high share of slots unused. As such, some slots may be up for grabs for other airlines,” Ansuman Deb of ICICI Securities said in a research report.
The slot portfolio of Jet, which had a higher share in Tier I airports like Mumbai and Delhi is the key attraction to any potential investor, but without these slots, investor interest will be minimal, Deb added.
Rival airlines will not only gain market share but their yields could also get a boost as fares have gone up, in the backdrop of Jet’s woes.
The capacity share of Indigo had already touched 45 per cent in February, and the incremental market share go up further, with Jet’s capacity reducing.
Elara Capital expects yields to go up 4 per cent year-on-year for Indigo and 2 per cent for SpiceJet.
“Indigo would benefit more than SpiceJet on fares increase, as it has more exposure to metro routes whose fares outperformed, owing to Jet Airways’ financial woes,” the broking firm said.
Elara expects both Indigo and SpiceJet to report a profit in the quarter ended March 31, 2019, but dragged down by Jet Airways, the cumulative net loss of the three companies put together is expected to be around Rs 500 crore in the quarter ended March 31, 2019, versus Rs 900 crore in the October-December quarter.
Jet Airways’ shares on Friday ended almost flat at Rs 260.45. SpiceJet soared 8.5 per cent to Rs 109.90 and Interglobe Aviation (Indigo’s parent) gained 2.1 per cent to close at Rs 1,432.15.
