Resolution plan projects airline to report profit from Oct.-Dec. quarter; network to be pruned further
The Bank-led Resolution Plan (BLRP) for troubled carrier Jet Airways, which will be taken up for shareholders’ approval at an EGM on Thursday, has projected that the airline will start turning in net profits from the October-December quarter of 2019-20.
According to people familiar with the restructuring, the resolution plan states that the turnaround would happen in the next six to nine months. The company is expected to report positive EBIDTA in the second quarter (July-September) and net profit in the subsequent quarter. As per the BLRP, lenders will convert a part of their ₹8,200 crore debt into equity such that they will collectively have 51% stake initially in the company just for ₹1, as per RBI norms.
It is not known how much of the debt is getting converted into equity and at what price, but according to analysts, conversion is happening closer to ₹150 a share.
After conversion of debt into equity, the holding of promoters and existing shareholders would be reduced by half.
Therefore, Naresh Goyal’s stake would fall from 51% to 25.5%, Etihad’s from 24% to 12% and the general public holding from 25% to 12.5%.
The remaining part of the debt will be restructured with a longer tenure for repayment, providing a breather to the airline. “Only the unsustainable part of the debt will be converted into equity,” said a person privy to the development.
With the airline estimating fresh funding requirement of ₹8,500 crore, there will be a rights issue soon after a new investor comes on board.
It is believed that Etihad Airways will subscribe to the rights offer such that its stake will rise to 24%, while Mr. Goyal will participate to a limited extent.
Banks will, of course, stay away from the rights issue as it would force them to part with more money.
After the resolution plan is implemented post the rights issue and fresh fund infusion, the shareholding of banks will fall to 30-32% from 51% while Goyal’s shareholding will be around 20%. Etihad will be at 24% and the new shareholder will have around 15%.
The public is expected to be left with around 10%. According to the resolution plan, fresh capital infusion by the new shareholder and the funds raised via rights issue will be around ₹4,000 crore, while ₹3,000 crore will come from the sale of aircraft. Banks will extend fresh advance of ₹1,000 crore.
“Once the money comes, it will take care of the overdues. The problem with Jet is that the cost structure has become very high. They were able to manage till fuel prices were low,” said a person having knowledge of the recast plan.
The person said that several cost control measures were being explored. For example, Jet would reduce the distribution cost as it had a huge network of travel agents as compared with competitors. The airline would also look at rationalising some sectors and stop flying in non-profitable routes.
An email to Jet Airways seeking a response remained unanswered till the time of going to press. Ambareesh Baliga, an independent analyst, said that the projected turnaround was subject to capital infusion and business environment remaining conducive. “Today, for Jet, the biggest issue is balance sheet. Post fund infusion, the business environment needs to be conducive to achieve the milestones. The dues to lessors, vendors and employees have to be cleared immediately to provide comfort to customers.”