INSUBCONTINENT EXCLUSIVE:
Debt-ravaged Jet Airways India Ltd., the country's biggest full-service airline, is selling a majority stake for 1 rupee -- a little more
than 1 United States cent
It's part of a bailout plan by its state-owned lenders that will give the airline time to arrange fresh equity
The complicated arrangement is on track to be voted through on Feb
21, in what would represent the rescue of one of the country's most visible companies at a sensitive time, with the general election just
What is Jet AirwaysIt's consistently been one of India's top three airlines in the past decade
Jet Airways was founded by ticketing agent-turned-entrepreneur Naresh Goyal after India ended a state monopoly on aviation in the early
It's now 24 percent owned by Abu Dhabi's Etihad Airways PJSC and controls 13.9 percent of the country's market, one of the
fastest-growing in the world
Jet Airways also flies to international destinations including London and Singapore.2
Why is it in troubleAs a slew of budget carriers started flooding the market in the mid 2000s, offering no-frills, yet on-time flights, Jet
Airways began dropping fares, some to below cost
On top of that, state taxes of as much as 30 percent on jet fuel added to its expenses, while price-conscious travelers refused to pay a
premium for on-board meals and entertainment
Unlike budget operators, full-service airlines such as Jet Airways offer such amenities mostly for free
Jet Airways lost money in all but two of the past 11 years and has Rs 7,299 crore ($1 billion) of net debt
While it didn't separately disclose cash and cash equivalents as of Dec
31, Bloomberg calculations show the airline had about Rs 355 crore of cash at the end of last year
It defaulted on loans that were due by Dec
31 and has delayed payments to staff and lessors.3
What is the proposed dealA group of lenders led by State Bank of India has proposed taking a 50.1 percent stake for 1 rupee through the
issuance of 114 million new shares, a maneuver that's allowed under a framework outlined by the Reserve Bank of India last year
The procedure, applicable for companies with a negative net worth, is called Bank-led provisional resolution plan, or BLPRP, and it needs to
be approved by all lenders, a banking industry group, founder Mr Goyal and the board of Etihad
The structure, however, is expected to be temporary, allowing the airline to raise equity from investors, which in turn would alter the
Jet Airways, which requires some Rs 8,500 crore to get back on its feet, now needs to bridge that gap through fresh equity infusion, debt
restructuring and asset disposals, such as selling aircraft and leasing them back
While the bank deal is nominally a conversion of debt into shares, debt levels will come down only by 1 rupee once the exercise is
Who will invest fresh equityJet Airways management has given scant detail, but said lenders will also participate in an equity issuance
round beyond the already allotted 114 million shares
Jet Airways has held talks with Etihad and conglomerate Tata Group, while Mr Goyal has offered to pump in as much as Rs 700 crore, if he
retains his 25 percent stake
Etihad may invest about Rs 1,400 crore and retain a stake below 25 percent, while the National Investment and Infrastructure Fund may bring
in as much Rs 1,300 crore, television channel ET Now reported, citing unidentified people.5
Why is it important to rescue a private companyPrime Minister Narendra Modi faces an election within months, and the collapse of an airline
-- with 23,000 jobs at stake -- would put a dent in his business-friendly image and fuel criticism that he's failed to deliver on promises
Mumbai-based Jet Airways' disappearance would also likely push up airfares -- it flies to 37 destinations across the country
The sensitivity of the matter was highlighted last year when the government reached out to the Tata Group seeking help.6
What's at stake for EtihadA lot
The struggling Abu Dhabi-based giant has scrapped routes and cut thousands of positions, putting the brakes on a costly expansion after
almost $3.5 billion in losses in two years
It just slashed orders worth $21.4 billion for Boeing Co
and Airbus SE jetliners, after a strategy of buying into sick airlines around the world backfired
A healthy Jet Airways would feed traffic to Etihad's base in Abu Dhabi, flying west-bound Indians to the United States and Europe.7
How are others doingThe airline business in India is notoriously difficult, with cutthroat competition pushing base fares to as low as 2
Kingfisher Airlines, founded by beer tycoon Vijay Mallya, ended operations in 2012 after failing to clear its dues to banks, staff, lessors
almost collapsed two years later before its founders returned to gain control and revive the company
is surviving on bailouts worth billions of dollars
Apart from Etihad, Singapore Airlines Ltd
have also set up local ventures, but they are all loss-making
There's one exception: IndiGo, operated by InterGlobe Aviation Ltd., has managed to consistently make money with a tight lid on costs and
lucrative maintenance and engineering contracts negotiated as part of large aircraft orders.
