Sunday, March 03, 2019

Why Etihad has left Jet Airways to fend for itself for now, explained

The divestment of Naresh Goyal-led Jet Airways has met with another stumbling block. Abu Dhabi-based airline Etihad Airways, which has a 24% stake in the domestic carrier, is reportedly unwilling to infuse any funds in Jet operations until all stakeholders finalise and approve a bank-led resolution plan (BLRP).

India’s largest public sector lender, State Bank of India (SBI), is piloting the BLRP. But getting all stakeholders concerned to approve it will take time. In the meantime, the cash-strapped Jet Airways needs immediate funds to continue operations as well as pay off its vendors and aircraft leasing firms.

According to estimates, Jet Airways, which has a huge debt burden of Rs 8,052 crore, needs close to $500 million (Rs 50 crore) between now and April to meet repayment obligations and manage operating expenses.

At a meeting on Wednesday, helmed by SBI chairman Rajneesh Kumar, Etihad’s stance was conveyed to the bankers and Jet Airways board. Etihad’s CEO Tony Douglas and Jet’s chairman Naresh Goyal were also present, but no agreement was reached on procuring funds for the interim.

This development arrives just after Goyal agreed last month to step down as chairman. With the completion of the BLRP process, Goyal’s stake in the airline could see a decrease of about 30% from 51%.

CNBC TV18 reported in January that Goyal and his wife Anita are ready to dilute their stake by as much as 35%; and Goyal has even agreed to voting rights on capping his stake at 10%.

With Etihad currently holding 24% shares in Jet Airways, the deal will likely raise its ownership to 49% in the expanded equity base, the most that foreign carriers can own in a domestic airline, as per Indian law.

The BLRP is a mix of equity infusion, debt restructuring, and asset monetisation aimed at filling the funding gap of around Rs 8,500 crore; that includes proposed repayment of aircraft debt of around Rs 1,700 crore. To monetise Jet Airways’ assets, the BLRP may recommend sale, leaseback or refinancing of aircraft, among other things.

This would enable the consortium of lenders led by SBI to become the largest stakeholders in the airline.

But first, the consortium of lenders, the overseeing committee of the Indian Bankers’ Association, the board of directors of Etihad Airways, the promoter of Jet Airways, the Securities and Exchange Board of India, the Ministry of Civil Aviation, and the Competition Commission of India must approve the BLRP.

“The final plan will be put in place by the end of January and the lenders are hopeful that the resolution plan will be in force by March 31; that is well before the 180-day period under the Reserve Bank of India’s February 12 circular,” said the first person cited earlier.

The circular said a resolution professional should be appointed within 180 days for defaulting accounts with aggregate exposure of ₹ 2,000 crore and above.
03/03/19 Prarthana Mitra/Qrius

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