Prince Mathews Thomas Moneycontrol News
Grounding of Jet Airways' five aircraft and subsequent flight cancellations have brought back memories of the Kingfisher episode, when similar developments had a spiralling effect and eventually led to the Vijay Mallya-owned airline shutting shop.
At the same time, industry executives said the impact could be limited and temporary this time, as Jet Airways seems to be close to raising funds, after calling for an extraordinary general meeting on February 21 to convert its debt into equity.
Jet Airways has been forced to ground five of its aircraft, with the lessors starting the process to take back their planes following delay in payments. The airline follows a sale and lease model, where it sells new aircraft to lessors before leasing them back. Of its fleet of 124 aircraft, the airline owns 16.
It had planned to sell these 16 aircraft to raise at least $500 million. But the plan has remained stuck, with difference of opinion between the airline management and lessors over aircraft valuation.
The inability to sell the aircraft had worsened the airline's liquidity crunch, and it defaulted on loan repayments on December 31, 2018. The company, which has debts of over Rs 8,000 crore, now needs to repay about Rs 1,700 crore by March.
The Jet Airways management is now pinning its hopes on the EGM. Apart from turning debt into equity, it also wants to increase its authorised share capital.
These will consequently lead to dilution of stakes held by Naresh Goyal, and Etihad Airways, which owns 51 percent and 24 percent in Jet Airways, respectively. Both have promised to put in money. The lender, led by State Bank of India, will get a stronger hold on the company. Reports suggest that SBI will acquire significant stake after shareholder nod.
The Kingfisher experience In the meanwhile, Jet Airways has to find ways to manage its operations. "The fleet being taken back will lead to lower yield," said an industry consultant.
"If lessors are grounding aircraft and flights are cancelled, these can have a spiral effect," said a senior airline executive.
This is what happened with Kingfisher Airlines. Bogged down by losses and a high debt, the airline was forced to ground aircraft, cancel flights and then close down operations in cities. As salary payments got delayed, pilots and engineers went on a strike.
The airline eventually lost its license to run an airline from the Directorate General of Civil Aviation (DGCA) in 2012.
At Jet Airways too, there were instances of pilots not showing up. But overall, the airline has managed to hold on to its employees, who are also waiting to see how the fund raising exercise pans out.
While Naresh Goyal has promised to invest Rs 700 crore, Etihad too has shown willingness to bring liquidity. But the two differ on valuations.
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