Tuesday, March 12, 2019

PSU Banks Rescue Jet Airways

Instead of privatising Air India, the country’s white elephant, we are about to witness the quasi-nationalisation of Jet Airways, one of India’s best – but most indebted – private airlines.

Under the Bank-Led Provisional Resolution Plan (BLPRP), a consortium of public sector banks and other institutional lenders will control 51 per cent of Jet Airways’ equity. Chairman and founder Naresh Goyal will step down. His shareholding will drop significantly. Etihad Airways’ equity of 24 per cent could rise marginally. The balance will be widely held by the public.

Can a consortium of PSU banks run an airline? State Bank of India (SBI), which leads the bail-out consortium, is trying to protect its stressed loans in Jet Airways by converting them into equity in the hope that the revived airline will enable it to eventually offload its shareholding at a reasonable price to a new buyer, recovering some if not all of its debt.

It is, alas, classic debt-to-equity wishful thinking that lenders are often compelled to indulge in. Jet Airways faces not only a cash crunch but falling market share in an increasingly competitive aviation industry. To keep Jet flying, the banks, as the airline’s majority shareholders, will need to pump in significant new funds just as the government is doing in Air India.

Few would have thought that India’s pioneering private airline would end up as a de facto nationalised airline, its future in the hands of PSU banks. Only two PSU banks in the consortium (SBI and Punjab National Bank – PNB) have so far backed the rescue plan.  SBI and PNB are prepared to buy other banks’ exposure to Jet Airways and provide emergency funding. Several of Jet’s aircraft are either grounded or have been re-possessed by lessors because lease payments haven’t been made. A shortage of pilots, both generic to the aviation industry and specific to Jet which hasn’t paid salaries for months, has worsened the situation. Jet’s market capitalisation has collapsed to Rs. 2,700 crore, less than the valuation of some one-year-old startups.
12/03/19 Minhaz Merchant/Business World

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