MUMBAI: Minority lenders that are part of the consortium that has lent to Jet Airways have agreed to grant priority status to funding that would be provided by State Bank of India + (SBI) and Punjab National Bank (PNB). This will enable SBI and PNB to provide emergency funding to keep the airline afloat until a resolution plan is in place.
Priority status for the loans would mean that if at the time of resolution lenders need to take a haircut on their historical exposure, the emergency funding would not be subject to any deductions. Normally in the case of default, lenders are hesitant to throw good money after bad. But often, like in most bankruptcy cases, there is a need for additional finance to keep the business going. This is why lenders have a provision for priority finance, where the lenders are given top priority at the time of settlement.
Earlier, SBI was not in favour of emergency funding and wanted a durable plan rather than a ‘band-aid’ solution. However, the crisis at Jet Airways is deepening by the day with promoter Naresh Goyal playing a brinkmanship game. So far, over 80 planes in Jet Airways’ fleet have been grounded by lessors for non-payment of dues.
Bankers say that a revival plan would require sacrifice from the lenders, which would be subject to a new promoter stepping in with equity infusion. With the Insolvency and Bankruptcy Code in place, any sacrifice is done only during the bankruptcy resolution process. However, in the case of Jet Airways, bankruptcy proceedings are not an option. Lenders say that initiating bankruptcy proceedings could result in lessors attaching their aircraft. Jet’s own aircraft comprise only a fraction of the entire fleet.
This would mean that lenders will be left only with the brand and flight routes in the event of a bankruptcy proceeding. Considering that Jet Airways had outstanding debt of over Rs 8,000 crore, the best option for lenders is to sell the airline as a going concern. A prerequisite for selling the airline is evicting Goyal from the promoter’s chair.
The public sector banks that have lent to Jet are Canara Bank, Bank of India, Syndicate Bank, Indian Overseas Bank and Allahabad Bank in addition to SBI and PNB in the consortium. For potential buyers, the downside of acquiring Jet as a going concern is that they will have to take on all its liabilities, including dues to Airports Authority, employees and the liability in respect of thousands of cancelled flights. In a bid to raise money for its operations, the airline had aggressively sold tickets last month. However, with aircraft being grounded by the day, the airline has been forced to cancel hundreds of flights. There are 26 banks that have lent to Jet — both private & foreign lenders.