India's Jet Airways grounds 15 more aircraft as crisis deepens

Debt-ridden Indian airline takes the decision to ground more planes due to non-payment of fees to lessors
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The further grounding of aircraft indicate that the SBI-led banking consortium is holding back the transfer of funds until it works out all components of the restructuring plan.
The further grounding of aircraft indicate that the SBI-led banking consortium is holding back the transfer of funds until it works out all components of the restructuring plan.

Debt-ridden Indian airline Jet Airways flew into more turbulence on Tuesday, with the carrier grounding 15 more of its aircraft due to non-payment of fees to lessors.

The airline is currently operating only 29 planes, out of its 119 aircraft.

The decision indicates that the SBI-led banking consortium, which has promised infusion of $219 million as part of its bailout package for the carrier, is holding back the transfer of funds until it works out all components of the restructuring plan.

According to aviation industry sources, the lenders to Jet Airways have called an urgent meeting in the wake of Tuesday’s Supreme Court of India’s order, setting aside Reserve Bank of India’s February 2018 circular on the revised framework for the resolution of stressed assets.

The Jet board meeting on March 25 - which saw its founder chairman Naresh Goyal, his wife and one of the Etihad Airways nominees Kevin Knight step down from the board as part of the bank-led resolution plan for the carrier - clearly stated that the resolution plan being formulated by the SBI-led domestic lenders’ consortium was in accordance with the guidelines set out under RBI’s Feb 12, 2018 circular.

Aviation and banking industry sources told Arabian Business that the lenders are consulting with their own legal teams and external legal experts on whether the Tuesday’s court decision will have any bearing on their proposed resolution plan for Jet Airways.

The resolution plan, among other things, envisaged Jet issuing 114 million of its shares to the lenders against conversion of Rs 1 of lenders debt.

Financial sector analysts, however, feel that the Supreme Court decision on the RBI circular will not impact the banker’s bailout plans for Jet Airways.

“What the Supreme Court essentially said was that RBI cannot impose its new framework for the resolution of stressed assets on banks. Banks, however, are free to choose their options on dealing with their NPA or stressed asset companies what they think are the best option. Therefore, the apex court order should not have any impact on the lender's resolution for Jet Airways,” a senior executive with PwC India, said.

Some of the other financial and aviation industry experts Arabian Business spoke to also said banks have the discretion to pursue resolution plans for dealing with companies/promoters of the stressed assets in their portfolios.

“SBI may want to make itself doubly sure about the implication of Tuesday’s Supreme Court order on the RBI circular on its resolution plan for Jet before going ahead with it,” M R Rajaram, an independent financial consultant, and a former finance director in an MNC, said.

Even as the Supreme Court order has cast a shadow over the proposed bailout package for Jet Airways, the carrier said on Tuesday evening it has grounded 15 more planes due to payment default to its leasing companies.

“Since March 22, we had to ground 15 more aircraft due to payment related issues,” a Jet Airways spokesperson told Arabian Business.

The Jet official said the airline is currently operating only 29 planes, out of its 119 aircraft.

The resolution plan for Jet envisaged its lenders extending $219 million additional loans to the carrier as an interim arrangement.

The further grounding of aircraft indicate that the SBI-led banking consortium is holding back the transfer of funds until it works out all components of the restructuring plan.

When asked about chances of more planes getting grounded in the coming days, the Jet executive said they are not in a position to comment on it as “we are also waiting to hear from SBI about the fund infusion under the proposed resolution plan’.

“We expect some development on this by today evening or tomorrow,” the Jet executive said.

The latest round of grounding of aircraft has further crippled its daily operations, with air ticket booking agencies apprehending large-scale cancellation of Jet flights including its international flights.

“This will create uncertainty for several international passengers who must have booked Jet Airways flights under code sharing with Jet’s international partners,” a senior executive with a Delhi-based tour and travel agency said.

Source: Arabian Business

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