Govt, banks not keen to drag Jet Airways to NCLT; prefer domestic investor taking control

Nikita Vashisht
Moneycontrol News

Naresh Goyal-led Jet Airways' insolvency is the last problem state-owned bankers would want with a resolution plan still not in sight for the embattled airline.

According to a government official, the Centre doesn't want Jet Airways to get into insolvency via the National Company Law Tribunal, and instead favours a domestic investor to hold controlling stake in the Jet Airways.

"The government is in favour of an Indian player having majority stake in the airline," he said.

After Etihad Airways decided against any capital infusion, banks are likely to be the capital providers.

“Lenders have the option to pump in money on behalf of the major stakeholders pledging shares," a senior government official said. He said that the former will have to, later, reduce its stake.

Sources in the aviation ministry, however, said that it wasn't an "ideal" situation for state-owned banks to convert their debt to equity.

The airline is sitting on a debt mount of Rs 8,000 crore and has continuously defaulted on its loan repayment.

A lenders’ consortium led by State Bank of India (SBI) was in talks with Etihad Airways, minority stake holder of 24 percent shares in Jet, to infuse extra capital worth Rs 750 crore.

The Abu Dhabi based airline has, now, decided to walk out of the airline completely and sell off its stake to lenders.

“Being a shareholder, often without full control, but providing financial and human resource assistance in an environment where you cannot derive fair and reasonable benefit, simply does not work. I think there is a valuable learning point from it but the thesis that suggests Etihad just goes it alone is one that is equally flawed," Tony Douglas, group CEO, Etihad Airways recently said in an interview to industry association IATA.

Eithad Airways' plan to own majority stake in Jet Airways would run into India's foreign direct investment (FDI) rules, which caps any foreign airlines’ stake in a local carrier at 49 percent.

Bankers, however, "want either Etihad or Jet to push in funds to retain the board position," making the situation tricky.

All the lenders held a late evening meeting on the resolution plan for Jet Airways but could not hammer out a mutually agreeable resolution.

Banks want to avoid taking the cash-strapped airline to NCLT under insolvency code (IBC) as "banks have given loan to the airline against no collateral".

"The loan was given against brand value and no tangible collateral. If the airline goes into insolvency, banks would not be able to recover any value," a source said.

Jet Airways has brought back horrors of the now grounded Kingfisher Airlines, which too went bust in 2012 due to non-repayment of loan.

The airline's closure led to numerous job losses, monetary loss to aircraft lessors and pile up of bad loan in bank's accounts. The same is feared to be repeated with Jet as closure of the airline will add burden to already ailing banking system and will lead to job losses to over 23,000 people.

Moneycontrol reported on March 19 that lessors of Jet Airways' aircraft have already approached SpiceJet for 50 Boeing aircraft, grounded by Jet, to be leased for a short term period of one to three years on dry lease.

Jet Airways has grounded 78 of its aircraft from a fleet of 119 and has withdrawn 603 domestic and 382 international flights.

Aviation watchdog, Directorate General of Civil Aviation (DGCA), held an “emergency” meeting with the airline on March 19 to take stock of its financial health, flight schedule and booking cancellation.

DGCA said in its statement that government was “closely monitoring” the situation and “will take appropriate steps by the end of this month”.