The board of debt-laden Jet Airways met on 25th March 2019 to decide on the ways to obtain interim funding for the company and also to get an outlook for the financially plagued company. The main agenda on board was to get interim funding for the company to run.
Highlights of the meet:
The founder and promoter of cash-strapped Jet Airways, Mr Naresh Goyal and his wife Anita Goyal stepped down from the company’s board on 25th March 2019 at an emergency interim funding meet. Furthermore, Mr Naresh Goyal will desist to be the chairman of Jet Airways henceforth. Also, Me Kevin Knight, one of the 2 nominees of Etihad Airways resigned from the board of the company. Robin Kamark is the 2nd nominee in the board from Etihad still in the board.
Interim Management Committee:
An Interim Management Committee has been formed by the lenders of the company which will monitor the daily cash flow and the operations of the beleaguered Airways. The interim management committee will constitute of 5 members which will report directly to the board of the company. Out of the 5 members, 2 of them will be bankers, one from each McKinsey and Alvarez & Marcel and one member will be a senior member from the management of Jet Airways.
Infusion of cash-flow:
The lenders of the company will infuse up to Rs. 1,500 crores by the were of issuance of appropriate debt instrument secured against securities of assets of the company.
A consortium of lenders led by State Bank of India will covert their debt owed to the cash strapped company into equity and take over the controlling stake of the company. The company will issue 11.4 crores equity shares to the lenders upon conversion of Rs. 1 of their outstanding debt. The lenders led by State Bank of India (SBI) will now own 51% stake in Jet Airways. Naresh Goyal’s stake will come down from 51% to 25.5% and Eithad’s stake will come down to 12% from 24%.
Furthermore, the bidding process will be invited by April 30, 2019. Further, a new investor should be appointed by the end of May 2019.
Jet Airways had been consistently failing to post profits. Net profits posted by the company in previous years was mainly comprised of the money they were receiving from the asset sale of Bandra Kurla Complex and the money they received in tranches for the partial sale of their loyalty program i.e. Jet Privilege Private Ltd. 2015 was the last time the airline made any operational gains.
Earlier, Jet Airways has been saved by Etihad from a near-death experience once in 2013. Whereby, UAE’s airlines Etihad had infused USD 600 million for 24% stake in the company. In order to pare their outstanding debts and combat the increasing domestic competition and pricing war.
This situation was due to the never-ending pricing war Jet had entered into with Kingfisher Airlines along with low-cost carriers like Spice Jet, Indigo and Go Air.
Fuel to the Fire:
When Company could not withhold its own operations and could not maintain the cash-flow they acquired Air Deccan and Air Sahara with a view to increase its market share and get LCC space. The costs of the airlines increased and so did their loans. Further, the ATF rates skyrocketed and increased their operating expenses. This led to a downturn for the company.
Encumbered with around Rs 8,000 crores of debt the lenders decided to keep the 25-year-old entity flying. But the increase in the pricing war between the airlines and volatility in the ATF prices and further short term debts are key concerns. It will depend on how the capital infusion takes place and change in the holdings will pan out.
After the outcome of the meet, Jet Airways surged around 14% and touched the intra-day high of Rs. 259 on NSE and closed at Rs. 254.4 a piece up by 12.69%.