Is IBC the solution to the travails of Jet Airways?
I had written in my article ‘The travails of Jet Airways’ in Merinews on 03/11/2018 the following: Now for Jet Airways mess, obviously, the present foreign controlled owners and management are responsible for they did not or could not build up a reserve when the fuel prices were low for meeting contingencies such as it is now. Therefore, hopefully they will relinquish management control and sell off their controlling holdings in favour of an interested professional and cash rich group at a proper valuation well before the situation becomes hopeless.
The airline has already defaulted on its payment of lease rentals on its leased aircrafts. It has delayed salaries, laid off staff, grounded planes and pruned flights. It has been trying to coax strategic partner Etihad Airways to buy more stake in the carrier, but the Gulf airline won’t budge unless it gets chairman founder Naresh Goyal’s controlling stake. Goyal isn’t willing to cede. Etihad owns 24% in Jet. Earlier it negotiated with Tatas too, but similarly backed out.
Moreover, the company has large debt repayments due by March 2019 (Rs.1700 crore), FY 2020 (Rs. 2444.5 crore) and FY 2021 (Rs. 2167.9 crore). Jet has also proposed to SBI and the lending consortium for liquidity assistance and alternatively to convert its loans to equity. The lenders have said they won’t provide any assistance until Jet’s founders and shareholders put in cash into the airline.
Now, Jet Airways has delayed loan repayments as on December 31 and this will likely land Jet in the 180-day cycle of loan restructuring according to the latest RBI rules. The rules announced on Feb 12, 2018 abolished all earlier debt rejig mechanisms and put in place a stringent 180-day timeline post even one day of default, at the end of which the company is put under the Insolvency and Bankruptcy Code if the debt issue hasn’t been resolved by then.
For the first 90 days, the lenders would discuss with Jet and monitor the loans checking whether it becomes a non-performing asset (in other words if the credit has soured). That happening, lenders would for the subsequent 90 days try to restructure the debt, failing which the airline is put under IBC.
Jet Airways is in discussions with its largest lender to SBI for raising short-term loans worth Rs. 1,500 crore. The airline is looking to mop up these funds to meet its working capital requirement as well as for meeting some payment obligations. Jet Airways is expected to provide Etihad Airways’ guarantee for this financing, This not happening, IBC appears to be the best thing that can happen to Jet Airways under the present circumstances whereby adequate management and fund infusion is expected to occur.
The writer is a long-standing commentator on contemporary issues