Jet Airways, once India’s largest private airline, Wednesday decided to temporarily suspend operations as a consortium of lenders refused to consider extending emergency funding of Rs 983 crore to keep the airline flying.
The airline, which started operations nearly 25 years ago, said it would hence not be able to pay for fuel or other critical services to keep the operations going. “Consequently, with immediate effect, Jet Airways is compelled to cancel all its international and domestic flights. The last flight will operate today (Wednesday),” it said in a stock exchange filing Wednesday.
The closure of the airline’s operations has rendered around 16,500-plus employees including hundreds of pilots, who were not being paid salaries for several months, virtually jobless. In a mail to employees, Jet Airways CEO Vinay Dube said, “We don’t have an answer today to the very important question of what happens to us employees during the sale process.” But he asked them to “keep doing their job as best as possible”.
Banks led by State Bank of India (SBI), which have an exposure of over Rs 8000 crore, informed Jet Airways late Tuesday night they were unable to consider its request for critical interim funding. “The decision to shut down operations has been taken after a painstaking evaluation of all alternatives that were made available to the company and after receiving guidance and advice on the same from its Board of Directors,” the airline said.
Jet Airways has informed the Director General of Civil Aviation (DGCA), and the Ministries of Civil Aviation and Finance and other relevant government institutions of this course of action. “Over the last several weeks and months, the company has tried every means possible to seek both interim and long-term funding,” it said.
According to banking sources, bankers in the consortium were divided on the issue of funding Jet Airways. “The airline will come to banks for more funds once the Rs 983 crore is exhausted in a few days. The bidding process to bring in a new promoter/ investor will take at least two months. It was going to be a tough task to bail out the airline on a daily basis. Nearly half the banks were against providing emergency funding,” an official said.
Left with no money to run operations, the airline decided to close down temporarily. “Unfortunately, despite its very best efforts, the airline has been left with no other choice today but to go ahead with a temporary suspension of flight operations. This has been a very difficult decision but without interim funding, the airline is simply unable to conduct flight operations in a manner that delivers to the very reasonable expectations of its guests, employees, partners and service providers,” it said.
The airline which started defaulting three months ago was looking for an investor to pump in funds but failed to get any funding source. Etihad Airways, which holds around 24 per cent stake in the airline, refused to bring in funds. On March 25, as part of the bailout plan worked out by the lenders, Naresh Goyal and his wife Anita Goyal stepped down from the board. The airline was supposed to create appropriate security over the company’s assets for securing the existing facilities extended by the lenders and the proposed immediate funding support of up to Rs 1,500 crore by way of an appropriate debt instrument.
However, banks hesitated on releasing Rs 1,500 crore as promised in the resolution plan. State Bank of India had this week said the bid process for “orderly sale” of equity in the airline is currently being run by SBI Caps and is being vetted by the legal team.
“The prospective bidders will be shortlisted by SBI Caps shortly,” an SBI spokesperson said. “The proposed equity conversion by banks, if any, will be undertaken as a transitory mechanism to facilitate the bidding cum sale process. “SBI is acting on behalf of the group of lenders as part of the Bank Led Resolution Process,” he said.
One reason for banks to deny funding is the experience of bankers in the Kingfisher Airlines. “Bankers badly burnt their fingers in the Kingfisher Airlines case. Bankers don’t want a repeat of Kingfisher in the Jet AIrways case. If investigation comes at a later stage, nobody will come forward to help us. Bank officials which sanctioned loans to Kingfisher were booked later,” said an official. The airline will need at least Rs 5,000-6,000 crore for revival and get back to normalcy. Bankers say they don’t have the expertise to run the airline and would prefer a new promoter to take control of the crippled company.
In its response to the airline’s plea for Rs 983 crore emergency funding, the lenders said, “The Expressions of Interest (EoI) have been received and bid documents have been issued to the eligible recipients today. The bid documents inter alia has solicited plans for a quick revival of the company. The bid process will conclude on 10th May 2019,” it said. Lenders said they are actively working to ensure that the bid process leads to a viable solution for the company.
The company said it will now await the bid finalisation process by SBI and the consortium of Indian lenders.
Jet Airways said it will continue to support the bid process initiated by the lenders. “The airline will inform all guests about the temporary suspension of flight operations via text message or email to the contact details listed in their bookings. Jet Airways sincerely and profusely apologises for the disruption to the travel plans of all its guests. The airline would like to thank them for their continued patronage, support and loyalty over the years,” the Jet statement said.