Jet Airways, once the most profitable airline, has been facing huge losses since the January-March quarter, when it reported a massive loss of Rs 1,045 crore; and then in the April-June quarter when it reported a loss of Rs 1,323 crore. However, trouble for the airline intensified in the July-September quarter when it encountered a loss of Rs 1297.5 crore. At one point, it was reported that the airline did not have the capital to operate beyond 60 days. The low-cost model, followed by most domestic airlines in India, is one of the biggest factors behind rising operational costs in the aviation sector.
Jet Airways is one of those players which has been deeply hurt by the model, followed by budget airlines such as IndiGo and SpiceJet. It involves offering heavy discounts on flight tickets to attract more passengers. In a nutshell, it is a business strategy which is based on volume-based sales.
The State Bank of India (SBI) and Punjab National Bank (PNB) have agreed to provide Rs 500 crore in emergency funding to Jet Airways on a condition that other lenders in the consortium do not object. The fund will allow the cash-strapped Jet Airways to continue operations until the lenders agree to a restructuring plan for the airline, which has a debt of over Rs 8,000 crore.
The details of the loan, however, are yet to be worked out.
“Only SBI and PNB have agreed to step in and provide the loans,” reported a source, adding that “none of the other lenders are willing to lend more.” “Since it will be treated on a higher pedestal on the debt waterfall, it needs an okay from other lenders.”
On February 14, Jet Airways’ board approved a rescue deal that would make its lenders its largest shareholders, and fix a near $1.12 billion funding gap. Sunil Mehta, CEO of PNB, said that a long-term resolution plan for Jet Airways is under discussion. Under the proposed provisional resolution plan by Jet Airways’ top lender – SBI, banks may convert a part of the debt into 114 million shares by paying a token Re 1 apiece, based on Reserve Bank of India (RBI) restructuring guidelines. The move would give lenders majority shareholding (50.1 percent) in the company.
The approval of this plan, however, may get delayed due to the crucial emergency funding proposal. The airline had recently posted its fourth consecutive quarter of losses in the October-December period. It posted a loss of Rs 587.8 crore in Q3 FY19 against a profit of Rs 165.2 crore in the same period last fiscal and loss of Rs 1,297.5 crore in the July-September quarter of 2018.
The airline has also reportedly deferred deliveries of Boeing 737 MAX planes that were supposed to join its fleet by March. Flights have been withdrawn as a cost-saving measure and due to lessors taking back planes.
Sources: NDTV, Economic Times, Moneycontrol.com
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