Jet Airways is set to temporarily halt operations from Wednesday night after its lenders rejected the cash-strapped airline's plea for emergency funds.
The airline, saddled with roughly Rs 8,400 crore of bank debt, has been teetering for weeks after failing to receive a stop-gap loan of about Rs 1,500 crore from its lenders, as part of a rescue deal agreed in late March.
"The letter is being scrutinised and will be sent soon. Today, senior management are being informed in person and tomorrow, a meeting of ground staff is called for briefing them in person,” a person in direct knowledge of the matter said. The airline is soon expected to inform the stock exchanges, the civil aviation ministry and the Directorate General of Civil Aviation.
The airline’s CEO had informed employees of the critical situation of Jet Airways late Tuesday and had informed them that the company has reached out to lead banker SBI yet again, stressing “on the need for urgent funding requirements, critical to the continuation of the operations of our airline."
"In the said communication, we have highlighted the specific areas that will be immediately impacted, should the funding not be forthcoming. It is our earnest endeavour to keep all lines of communication open with you, such that you continue to be updated on all critical developments,” Vinay Dube had said in the letter.
While Jet Airways management had sought enough funds to pay employee salaries, the banks were only keen on lending for fuel and small payments for landing, parking.
“The last payment received was of Rs 2.5 crore from SBI. It is not a home loan, it is an airline,” one of the people in the know of the matter said. While the airline had requested at least Rs 1,000 crore from SBI on Monday, the amount was further reduced given SBI’s reluctance to infuse the funds.
It is learnt that SBI was willing to infuse only a handful of the amount to the tune of Rs 20 crore per day to keep the airline running, but the management was firm that a large portion is needed to operate an airline, which is a perishable business.
Separately, two sources at state-run banks told Reuters on Wednesday that the lenders had rejected the Rs 400 crore that Jet had sought to keep itself temporarily afloat, while its lenders attempted to identify an investor willing to acquire a majority stake in the airline and attempt to turn it around.
"Bankers did not want to go for a piecemeal approach which would keep the carrier flying for a few days and then again risk having Jet come back for more interim funding," said one of the bank sources directly involved in Jet’s debt resolution process.
Various slots of the airline have already been transferred to domestic carriers and Jet Airways will only have time till the end of summer schedule or October 26 to get them back.
Also, in order to retain the wide-bodied aircraft, Jet Airways will need substantial funding soon. In absence of slots and these aircraft, which are the key assets for an airline, it will be difficult to sustain the interest of a buyer, industry experts said.
The civil aviation ministry has already started putting together a plan in place to make up for the capacity deficit of as much as 70 planes. “It is an unprecedented situation,” the civil aviation secretary Pradeep Singh Kharola had said on Tuesday.
A once leading airline, Jet has been defaulting on payments, forcing its lessors to retake almost all its planes and was operating just about six planes as of Tuesday.
The airline, which had a total fleet of 119 planes until February with as many as nearly 100 planes in operations, has come down to 37 flights using 5 planes for today. A flight from Amritsar to Mumbai at 10.30 PM on Wednesday will be the last it will operate before the suspension of operations kicks in.
Jet will be the seventh airline to go down since May 2014 and the 13th one after East West was shuttered. During the past five years, airlines like Air Pegasus, Air Costa, Air Carnival, Air Deccan, Air Odisha and Zoom Air have all gone belly up even as the government boasts of double-digit growth for more than four years in tow.
With uncertainty mounting over the future course for the airline, which has been in operation for more than 25 years, its shares crashed nearly 19 per cent during the day amid reports that the carrier might temporarily suspend operations.
Jitendra Bhargava, former executive director, Air India, said, “Things have only got complicated and value erosion of Jet Airways has taken place. Now with all operations likely to shut down, you will have zero market share. It has become a very tough situation for Jet Airways now.”
Sanat Kaul, former joint secretary civil aviation, said, “Yes, I think halting of operations does seem inevitable. There is nothing left in Jet Airways. The planes are being taken back by the lessors, the slot time has been taken over by other airlines and the staff has not been paid so they are being invited by other airlines. The pilots and others were being offered that you come to us, we pay you the back salary and you join us, so I think they will all get absorbed. So if it is going to be May 10 or later, I think there will be anything left of Jet Airways expect the goodwill. Whether goodwill can carry back to normal operations I doubt it. The chances of revival seem very remote now.”
Aviation expert, Dhiraj Mathur, said, “Maybe the private equity guys are interested. So it is really between the private equity and Etihad to take this forward. The shutting down of operations at one level might be a positive thing simply because a) the bleeding would be partially stemmed and b) it is a final red flag, that if you don’t act now, then you might as well forget about it. As far as other bidders are concerned, they really don’t have any skin in the game but Etihad does have 24 percent equity, so Etihad is the one which has some skin in the game and if they want to do it then this is their last chance for them to do it.”
(With inputs from PTI and Reuters)