Board okays bank-led provisional resolution plan for restructuring to meet funding gap of ₹8,500 crore; airline reports ₹732 crore Q3 net loss

A consortium of commercial banks led by State Bank of India (SBI) will acquire a majority stake in Jet Airways (India) Ltd. by converting part of their debt into equity for a consideration of ₹1 and advancing more capital to give the airline a lifeline to enable it to achieve a turnaround.

Jet Airways’ board, on Thursday, considered and approved a bank-led provisional resolution plan (BLPRP) that proposes restructuring under the provisions of the ‘RBI Circular’ to meet a funding gap of nearly ₹8,500 crore, including proposed repayment of aircraft debt of ₹1,700 crore.

This will be met by an appropriate mix of equity infusion, debt restructuring, sale/sale and lease back/refinancing of aircraft, among other things.

The BLPRP will be presented to the consortium of lenders, overseeing the committee of the Indian Bankers’ Association, board of directors of Etihad Airways and promoter Naresh Goyal, for consideration.

Lenders will convert debt into 11.4 crore shares of ₹10 each by allotment of such number of equity shares at an aggregate consideration of ₹1.

The BLPRP is subject to the company receiving requisite approvals from shareholders at its EGM to be held on February 21, 2019.

Debt to shares

Jet Airways said the conversion of lenders’ debt into equity shares would result in the lenders becoming the largest shareholders in the company and they would appoint nominees to the board.

“Such allotment/conversion of lenders’ debt to equity shares of the company will be made at an aggregate consideration of ₹1, in accordance with the RBI Circular, whereby lenders can convert debt to equity at ₹1, when the book value per share of a company is negative,” Jet Airways said.

Post availability of interim credit facilities by domestic lenders, an appropriate governance structure including the board composition would be put in place.

The airline did not announce the quantum of stake the banks would pick up. However, Mr. Goyal’s stake is likely to be reduced substantially to about 20%, post debt recast from 51%.

“The bank-led resolution plan is a win-win for all stakeholders. However, composition and the quality of the board is key to the outcomes,” said Kapil Kaul, CEO, South Asia, Centre for Asia Pacific Aviation (CAPA).

‘Interim arrangement’

“I don’t see lenders running Jet Airways for long and this is an interim arrangement. Expect a new ownership order to emerge in the near term,” Mr. Kaul added.

Jet Airways Group on Thursday reported a net loss of ₹732 crore (standalone net loss ₹587 crore) for the third quarter ended December 31, 2018, against a net profit of ₹186 crore for the same period last year. Total revenue for the quarter was flat at ₹6,411 crore, compared to ₹6,412 crore in Q3 FY18.

Vinay Dube, CEO, Jet Airways said, “Jet Airways continues to make steady progress on its operational and financial turnaround and with the approval of the bank-led provisional resolution plan by the board of directors of the company, we remain confident of delivering a more strategic, efficient and financially viable airline.”

Network restructuring

During the quarter, the airline restructured its network, moving capacity away from unviable routes to profitable ones.

As part of its strategy to enhance efficiencies and reduce costs, the airline announced strategic changes to its current distribution process, which will be effective from April 1, 2019.