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IBS remains the best option for Jet Airways
Jet Airways is facing huge financial crisis, which has resulted in it being unable to pay rental for leased aircraft and interest on finances. Due to non-payment of lease rentals, lessors have grounded dozens of aircraft operated by the airlines, resulting in the cancellation of flights.

According to reports, total number of grounded aircraft has reached around 60, which is approximately half of the fleet size of 119 planes. Other than non-payment to creditors, the airline is also facing trouble in paying salaries, and they have not paid salaries to their maintenance staff for three months.

I had written in my article 'The travails of Jet Airways' in Merinews on 03/11/2018 the following: Now for Jet Airways mess, obviously, the present foreign controlled owners and management are responsible for they did not or could not build up a reserve when the fuel prices were low for meeting contingencies such as it is now. Therefore, hopefully they will relinquish management control and sell off their controlling holdings in favour of an interested professional and cash rich group at a proper valuation well before the situation becomes hopeless.

Etihad Airways, which owns 24 per cent share in Jet, was to infuse capital into the airlines to solve its financial crisis, but the talks are stalled over several disagreements. Etihad has not agreed to a debt resolution plan proposed by the lenders of Jet Airways, led by State Bank of India. According to the proposal, the consortium of lenders, will convert its loans into shares and pump in an additional ?1,000 crore to raise its stake to 29.5 per cent. On the other hand, Etihad was also expected to infuse between ?1,600 crore and ?1,900 crore to raise its shareholding to 24.9 per cent.

Another contentious issue is the perpetuity requirement included in the proposal. The proposal seeks to limit promoter shareholding of 22 per cent, but Naresh Goyal, the 52 per cent shareholder, is asking it to be dropped. Etihad is also not agreeing to the proposal to add two nominee directors from the promoter group. This appears to be a stalemate situation.

Jet Airways has already defaulted in paying loans and it has informed that it will default in making more payments which are due this month. The Airline has a debt of more than Rs 8400 crore, which continues to rise as interest gets added to that. Banks are reportedly likely to infuse fresh funds into cash-strapped Jet Airways (India) Ltd. provided that major shareholders of the airline, including Gulf carrier Etihad Airways, pledge their shares as collateral. But the promoters don't seem to be willing.

It is said that the creditors don't want to take Jet Airways to IBC. It is not clear why. In 'Is IBC the solution to the travails of Jet Airways?: Opindia, 5/1/2019, I had indicated and now I reiterate that IBC appears to be the best thing that can happen to Jet Airways under the present circumstances whereby adequate management and fund infusion may be expected to occur. IBC would enable a more transparent and competitive bidding from genuinely interested professional group, which is unlikely in privately organized negotiations by lenders.

*The writer is a long-standing commentator on contemporary issues.

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