Jet is looking at various funding options, but Chairman Naresh Goyal is reportedly adamant on retaining his stake and control. Given that options are getting increasingly limited, Goyal may have to change his stance.
Struggling Indian airline Jet Airways is reportedly in talks with the State Bank of India for a short-term loan of Rs 1,500 crore to help it address its payment obligations and also fulfil short-term working capital needs according to a source. The company’s strategic partner Etihad is expected to be guarantor for the loan.
Jet Airways has stunned its investors with consecutive losses of more than Rs 1,000 crore each in the quarters ending March, June and September 2018. By September 30, it had a debt of around Rs 8,052 crore on its books. Cutthroat competition from low-cost airlines like Indigo have severely dented the profitability of Jet Airways, apart from other environmental factors like high fuel prices and taxes and rupee depreciation in 2018.
Liquidity problems are further pulling the company down, as evident in delays in salary payments (by two months) and lease rental payments to its lessors. ICRA has cut the ratings on its borrowing from B to C and EY is conducting a forensic audit on irregularities in Jet Airways.
Currently, Jet is also in the process of raising US$ 350 million from overseas lenders. Again, this is reportedly being guaranteed by Etihad, but is expected to take time according to the source. Therefore, the firm is looking at SBI as a back-up option.
Apart from this, Jet has also been discussing possibilities of a stake sale to the Tata Group. But insiders say that Naresh was unhappy with the deal on the table and therefore went back to Etihad for support. The airline, which is the national carrier of Abu Dhabi, has taken a stake of 24% in Jet Airways for Rs 2,060 crore in 2013, besides giving a low-interest loan of US$ 150 million and buying a stake of 50.1% in its JetPrivilege loyalty programme.
There are twin issues with Etihad Airways raising a stake. Firstly, if its stake goes beyond 25%, needs to make an open offer to shareholders to purchase another 26%. But in that case, it also breaches the 49% threshold for foreign ownership rules.
Naresh Goyal is apparently looking at various funding options that do not dilute his control of Jet Airways, a major reason why Jet walked away from the Tata offer. He continues to own 51% stake in the airline and his wife is also still on the Board of Jet Airways.
While the tendency of founders to resist losing control is not new, Goyal should bite the bullet in the larger interest of the airline. The airline owes around US$ 400 million to creditors currently and is struggling to revive itself. Its stock has fallen by 70% over the course of 2018, resulting in value erosion of over US$ 900 million.
The lessors can repossess aircraft according to a Capetown convention that India is signatory to, if their dues are not paid. Moreover under the new insolvency laws, creditors can also take Jet Airways to court. It is really time for Goyal to give up on his predilection for control, so that the airline may survive.