Ravi Krishnan
The board of Jet Airways has approved a provisional restructuring plan by lenders to meet a funding gap of Rs 8500 crore. Banks will get a 50.1 percent share in the airline after converting their debt into equity, and also provide interim credit facilities. This will presumably be followed by promoters and other big shareholders such as Etihad infusing equity.
The Jet stock has moved higher on the news, but the reaction has been muted. That is because investors know that many imponderables remain.
For instance, a report by the Economic Times says that some lenders are unhappy with the proposal and the manner in which the State Bank of India has pushed it.
The airline had a negative networth of Rs 9768 crore by the end of September. It is still not known how much of bank debt will be converted into equity, what funding facilities will be provided by banks and how much capital will be injected by shareholders or by new investors. That will not only determine the board and management composition of Jet Airways, but also its future course.
What’s clear for now is that this restructuring, if it passes muster and gets all the requisite approvals, will somewhat ease Jet Airways’s cash flow situation and provide it some breathing space. It can pay its lessors and employees and keep flying. In effect, there is some light at the end of a long tunnel.
But for a sustainable turnaround, not only is fresh capital needed, but also fresh thinking. Structures and operations will have to be overhauled. That won’t be easy and explains the cautious investor reaction with the stock up around 4 percent by midday on Friday.
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