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Can Goyal ‘Jet’ set ‘Go or No’?

Jet Airways is in discussions for a US$ 900 million resolution plan that could reduce Goyals’s stakeholding by half. But even that is contingent on the outcome of an EY forensic report.

Domestic lenders to Jet Airways led by the State Bank of India have proposed a US$ 900 million resolution plan that includes fresh equity investment and restructuring of loans of around US$ 450 million. This was shared at a meeting chaired by SBI, with attendees including Jet Airways Chairman Naresh Goyal along with senior management of the company and a representative from Eitihad Airways according to sources. The UAE-based airline Etihad Airways owns 24% equity in Jet Airways.

According to sources, the plan involves Naresh Goyal and Etihad putting in US$ 450 million worth of equity and Indian lenders restructuring US$ 450 million of debt. If approved, the plan will bring Naresh Goyal’s shareholding below 51%.

A resolution on the plan is needed by March 31, 2018, as per the stipulated 180-day period under RBI’s February 12 circular. It mandates that a resolution professional be appointed within 180 days in case of loan defaults by entities having an exposure of over Rs 2,000 crore. Jet Airway’s total debt is around Rs 8,000 crore and it has to fulfil repayment obligations of Rs 6,500 crore till March 2021. Alarm bells were also raised when Jet Airways did not pay December salaries to its senior management as well as pilots and engineers. Moreover, it has not been making timely payments to 15% of its 16,000 employees since August 2018 due to its liquidity problems.

Jet Airways has defaulted on its loan repayment to banks on January 1, after which its long term rating on bonds and loans was brought down from C to D by rating agency ICRA. Having suffered operational losses over the past three quarters, Jet has explored various options to raise funds, including stake sale in the Jet Privilege loyalty programme. It also entered into talks with the Tata Group on selling stake, which reportedly floundered due to disagreement on Goyal’s future status in the airline.

The airline needs around US$ 500 million by April to meet all its repayment obligations and operational expenses. According to the source, the lenders have assured vendors of Jet Airways that their dues will be cleared in three tranches by April, after which the payment cycle should get back on track. It is also possible that Goyal gives up operational control of Jet Airways to Etihad, which can take upto 49% stake under FDI norms.

Another report states that SBI could take upto 20% stake in the airline and Goyal may have to step down and continue in a non-executive role with around half his present stake. Someone from the Goyal family could also replace him. However, the lenders are also waiting for a forensic audit report by EY on Jet Airways’ viability before they release fresh loans. They are all the more apprehensive due to past precedents like Kingfisher Airlines and the Nirav Modi scam.

If Jet Airways does not fulfil the loan commitment within 90 days, it will be categorized as an NPA, and its lenders can initiate insolvency proceedings.

As we had DKODED in our earlier report, the best option would have been for Naresh Goyal to sell off his stake and give up operational control. This could help Jet Airways tide over its existing troubles and live to fight another day. But in case the EY report turns out to be negative, even the window for this option could close very soon.

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