India's cash-strapped carrier Jet Airways and a consortium of banks led by the government-owned State Bank of India (SBI) have reportedly signed a Memorandum of Understanding (MoU) in which the two entities apply to the Ministry of Civil Aviation for exemption from the takeover code and open offer, the Economic Times reported quoting unidentified sources.
Sources say the MoU will allow SBI to convert its debt to equity which will be worth almost a 15% stake in Jet Airways. If SBI infuses more funds into the airline, then its stake may rise to 30%.
Other lenders apart from main lender SBI are HDFC Bank, ICICI Bank, Punjab National Bank, Axis Bank, Canara Bank, IDBI Bank and Standard Chartered Bank.
Jet Airways defaulted on a debt payment to the consortium of Indian banks last month, prompting a downgrade by ratings agency ICRA. The airline has to make large debt repayments over the next few years, starting with about 17 billion rupees (US$242 million) by the end of March, ICRA said on Jan. 2.
Etihad might take control
Etihad Airways which currently has a 24% stake in Jet Airways, apparently earlier agreed to inject funds which are expected to raise its equity stake to 40-49%. However, the UAE-based carrier has put forward stringent conditions, including disempowering Jet Airways founder and chairman Naresh Goyal from all responsibilities, exemption to an open offer, and putting a cap of not more than Rs 150 for the Jet Airways' share price. Separately, Etihad has also appointed management consultancy firm Alvarez & Marsal, which specialises in turnarounds, which sources say, indicates that the airline is committed to reviving Jet Airways. The carrier's founder Goyal is believed to be willing to cede control and allow somebody else (Etihad in all probability) to control the airline.
Mountain of debt
Sources say that negotiations last week between a consortium of banks led by SBI and Mr Goyal, who currently holds a 51% stake in the embattled carrier, will likely result in a significantly reduced stake of 10%-15% for Mr Goyal.
With debts of about US$1.14 billion, Jet Airways is facing fierce competition from other low-cost carriers, a rupee depreciation and high oil prices. It owes money to banks, pilots, vendors and lessors, some of whom are considering taking back aircraft, sources have told Reuters.
In a related move to infuse funds into the airline, Etihad Airways last week pre-purchased Jet Airways’ tickets worth US$35 million through its loyalty programme company Jet Privilege. The tickets will be offered to Jet Privilege members as redemption for their accumulated miles of air travel. Etihad owns 50.1% of Jet Privilege, while the rest is held by Jet Airways.
Jet Airways, which controls a sixth of India's booming aviation market, did not respond to a request for comment, while SBI and Etihad also did not reply to emails seeking a response.
Nol van Fenema