NCLT sets 90-day deadline for Jet Airways bankruptcy resolution

Jet stopped operations on April 17 leaving over 14,000 employees in the lurch.

The National Company Law Tribunal (NCLT) on Thursday admitted the insolvency petition moved by State Bank of India (SBI) — under section 7 of the Insolvency and Bankruptcy Code (IBC) — against Jet Airways, and instructed that the resolution process be wrapped up in 90 days as the matter is of national importance.

Typically, the corporate insolvency resolution process (CIRP) should be completed in 180 days, and an extra 90 days’ time is granted in case the process doesn’t conclude in the stipulated period. The interim resolution professional (RP) has been instructed to submit fortnightly progress reports on the CIRP process, with the first to be filed on July 5, the day of the next hearing.

The tribunal also declared a moratorium on recovery of dues from Jet, the country’s first aviation firm to be admitted for bankruptcy. Jet had over 120 planes, of which only about a dozen have not been de-registered by the civil aviation regulator. The rest of the planes had their leases terminated and many of them have been inducted by other airlines in India or abroad.

Also, on a day which saw the beleaguered airline being admitted under the insolvency process, Jet shares posted their highest single-day gain on the bourses on Thursday, rising 93 per cent on the BSE to end at Rs 64 after declining 75 per cent in the previous 10 sessions. Such a movement in share prices is highly unusual.

ALSO READ: Jet Airways: Exit is best

Moreover, presiding judges V P Singh and Ravi Kumar Duraisamy did not take cognizance of the Dutch court order that had declared Jet bankrupt, given that cross-border insolvency is still not in place under the IBC and because the jurisdiction of the corporate debtor rests with the tribunal (as the company is listed in India).

SBI, in its plea, said the airline had defaulted on working capital loans of up to Rs 970 crore. Jet had a working capital facility of Rs 505 crore. This account was overdrawn by around Rs 460 crore for 30 days. The lender had also provided a term loan facility of Rs 1,292 crore to the carrier, which owes over Rs 8,000 crore to a consortium of 26 lenders.

Business Standard

Debt trouble: All Jet Airways needed to avert this tailspin was a rupee

Jet Airways - India's longest-surviving private airline now needs bankers with spine to keep flying.

All Jet Airways India Ltd. ever needed was 1 rupee, or just 1.4 U.S. cents, for providing hot meals and cold towels.

Since even that modest goal has proven elusive, India’s longest-surviving private airline now needs bankers with spine to keep flying.

It’s been clear for some time that Jet, falling behind even on pilots’ wages, was going to skip a debt payment soon. Now that a default on bank loans has finally happened, let’s spend a minute on the brutal economics of the missing rupee.

As a full-service carrier, India’s second-largest airline spends that much more per available seat kilometer than its bigger rival, IndiGo. That’s excluding fuel costs, which are volatile and exorbitantly taxed but comparable for all players.

The problem is that as 2015 was ending, Jet was earning only half a rupee more in revenue per seat kilometer than IndiGo. That was just before InterGlobe Aviation Ltd., the owner of IndiGo, set out to expand its scale of operations 2.5 times faster than what Jet could muster.(1) The market leader also drove prices lower by forgoing revenue of 0.9 rupees per kilometer over the first nine months of 2016.

Jet was too indebted to match its rival’s aggression. When it tried, by sacrificing revenue of 0.3 rupees per kilometer, it ended up charging customers less than it cost to fly them. Then, starting September 2017, oil prices shot up for a year. The whole industry was shaken, but Jet had already keeled over.

The fuel-price surge has now receded, and the airline is exploring cost-cutting options. But saving $100 million a year on maintenance contracts won’t make the debt problem disappear: Repayments of as much as 63 billion rupees ($900 million) are due by March 2021. Of its fleet of 124 at the end of September, Jet owns only 16 planes that can be sold.

Lengthening the working-capital cycle has its limits. Lessors have to be paid lest they take the aircraft away; employees have families to feed. A plan to monetize the airline’s privilege program hasn’t gone anywhere. Who’ll buy into Jet Privilege Pvt. when there are doubts about the carrier’s future? Speculation that the Tata Group could be a white knight has also waned. Nor is it clear if Etihad Airways PJSC — which must now regret picking up its 24 percent stake five years ago — would want to back Jet founder Naresh Goyal, the 51 percent owner, once again. The aviation market in the Middle East isn’t exactly brimming with optimism.

There are probably only a handful of good options now. Either Etihad doubles down by making a fresh investment; or the board finds a new owner who infuses equity by diluting Goyal and Etihad. To succeed, both these approaches would need the real threat of banks referring Jet to the bankruptcy tribunal. Goyal would lose control of the airline involuntarily, yet the carrier would continue to operate with fresh super-priority funding (which will rank higher than existing debt).

Business Standard