Abu Dhabi, UAEMonday 24 June 2019

Indian airline on verge of collapse close to getting a lifeline

Banks will become the biggest shareholders of Jet Airways in new restructuring

A new proposal, reached after weeks of negotiations, may help get Jet Airways back on its feet. Photo: Reuters
A new proposal, reached after weeks of negotiations, may help get Jet Airways back on its feet. Photo: Reuters

Lenders to Jet Airways India proposed a bailout of the carrier, potentially paving the way for a revival of the airline that was on the verge of collapse.

Jet Airways, which needs 85 billion rupees (Dh4.38bn) to help it get back on its feet, will be revamped with banks becoming the biggest shareholders of the company, according to a filing on Thursday. The restructuring would involve a mix of debt-to-equity swap, new capital infusion and asset sales, the company said, without elaborating.

The proposal, reached after weeks of negotiations, may provide a respite to the struggling carrier, part-owned by Etihad Airways. Jet Airways still faces intense competition from low-cost rivals, high fuel costs and levies – conditions that have brought it to its knees. It has more accumulated losses than any publicly traded Asian airline apart from Pakistan International Airlines.

Shares of the carrier, based in Mumbai, rose as much as 7.5 per cent on Friday, paring losses in the past year to 68 per cent. Its market value is about $381m (Dh1.4bn).

The proposed bailout, advanced by State Bank of India, needs approvals from all lenders, a banking industry group, Jet Airways’ founder Naresh Goyal and the board of Etihad, according to a statement. Jet Airways has called for an extraordinary general meeting on February 21 to seek shareholder consent for the deal and to name lenders’ nominees to the board.

India proved to be a tough market to crack despite world-beating passenger numbers, as provincial taxes of as much of 30 per cent makes jet fuel the costliest in Asia.

Beyond that, a slew of budget carriers including market leader IndiGo have lured passengers with low-cost, no-frills and on-time flights, forcing Jet Airways to resort to discounts. A price-sensitive consumer base that refuses to pay a premium for in-flight meals and on-board entertainment also means pressure on margins.

Jet Airways, one of the first private Indian airlines to dominate the local market after the government ended state monopoly in the early 1990s, has now been forced to cancel flights to smaller destinations as it falls behind on payments to creditors and employees. It had 80.5 billion rupees of net debt as of September 30.

The rescue package is reminiscent of a similar bailout of Kingfisher Airlines in 2011, when lenders including SBI converted existing debt into the loss-making company’s shares. But the carrier shut down three years later.

Competition and high costs triggered Kingfisher’s collapse, while state-owned flag carrier Air India has needed repeated bailouts. Even budget airline SpiceJet teetered in 2014 before its founders returned to gain control and revive the company. Jet Airways has reported losses in all but two of the past 11 years.

Updated: February 16, 2019 11:39 AM