April 9, 2019
The bidding process for debt-ridden Jet Airways got off to a slow start on Monday as no bidder came forward with a proposal to buy lenders’ stake in the airline. Even though lenders led by the State Bank of India (SBI) are offering ownership between 32.1% and 75% in the airline, no queries were received on the first day of the bidding process. The call for Expression of Interest (EoI) will end at 6 pm on Wednesday. As per reports, banks have again initiated talks with Jet’s biggest stakeholder Etihad Airways to find a resolution.
Private equity investors including TPG and wealth fund NIIF (National Infrastructure Investment Fund), US-based airline companies, Tata Group and Adani Group have been approached by lenders, reported the Economic Times, adding that banks could only offer 32 per cent of Jet shares for sale. Jet Airways founder Naresh Goyal, along with his wife, had stepped down as the Chairman of the company’s board on March 25. Under the approved debt resolution plan, the lenders took a majority stake in the airline and were set to infuse Rs 1,500 crore. This also reduced Goyal’s stake in the airline to below 25%.
However, the recent guidelines by the Supreme Court on the Reserve Bank of India’s (RBI) February 12 circular put the Jet restructuring plan in limbo. For now, as reported in ET, there is no change in Jet Airways’ shareholding. Goyal still owns 51 per cent of it, while Etihad owns 24 per cent and the rest is with the public. SBI, which is the lead lender of a consortium of domestic lenders that have extended loans to Jet Airways, is looking for “change in control and management” of the carrier. SBI Capital Markets is assisting and advising the lenders on the bid process. As per the advertisement, the airline has availed various credit facilities aggregating over Rs 8,000 from a consortium of banks.
India’s second largest airline, Jet Airways, is currently operating only 26 of its once 124-strong fleet and many of its aircraft grounded in recent weeks due to non-payment of lease rentals could get deregistered soon. Last week, two of its lessors, MC Aviation Partners and Avolon, applied to the Directorate General of Civil Aviation (DGCA) for de-registration, which means that the lessors can take their aircraft out of the country and lease them to other players. But now even the planes owned by Jet Airways may be at risk- it owns a total of 17 aircraft, mostly Boeing 777 and Airbus A330 planes, while the rest of its fleet is leased.
In September 2005, Jet Airways had signed a purchase agreement for 10 Boeing 777-300ER series aircraft with plans to start serving long-haul international destinations. These aircraft bought under a finance lease agreement, which works more like an EMI scheme whereby the lessee (Jet in this case) obtains ownership at the end of the tenure while in the case of operating lease agreements, the aircraft go back to the lessor. Because of this factor, with Jet Airways having delayed repayments of over $18 million to global lenders- including Citibank- that had financed its purchase of the Boeing 777s on the back of guarantees from Export-Import (EXIM) Bank of the US, these planes are now at risk of being repossessed.