Government initiates backdoor nationalisation of Jet Airways

Last Updated: Fri, Feb 15, 2019 12:25 hrs
Jet Airways (AP photo)

New Delhi: In a major move on Thursday, the government, through its bankers, undertook a backdoor nationalisation of Jet Airways Ltd.

With Jet agreeing to give lenders the majority stake by converting part of its debt to equity as the beleaguered airline battles a cash crunch, the lenders, most of whom are government-owned, are now the owners of the airline. And all this has been done at Re 1.

The question remains whether this is a bailout or backdoor nationalisation. After all, government-owned entities - banks and DFIs - are prima facie the new owners of the airline. In a move reminiscent of Kingfisher Airlines, which subsequently went belly up in 2014, lenders including SBI converted existing debt into the loss-making company's shares in 2011.

The Jet board, as part of a provisional resolution plan, agreed to allot 11.4 crore shares at an aggregate value of Re 1 to the lenders' consortium led by State Bank of India, according to the airline's stock exchange filing.

Through the conversion, the board of Jet Airways Ltd has approved an action plan by its lenders to resolve a near Rs 8,500 crore ($1.19 billion) funding gap, which will make them the largest shareholders of India's biggest full-service carrier.

Do the lenders have the wherewithal and expertise to run a full-face airline with so many imponderables strewn in its path? Or will they try and stabilise the operations only to sell it or merge it later with another domestic carrier? For the moment, the government is saddled with two debt-laden carriers - Air India and now Jet Airways.

Through the conversion, the lenders will end up owning 50.1 per cent in the full-service carrier. That will bring down Naresh Goyal and Etihad Airways' stake by half to 25 per cent and 12 per cent, respectively, according to back-of-the-envelope calculations.

Jet, saddled with over $1 billion in debt, had a turbulent 2018 as competition intensified in the Indian airline market, the rupee depreciated and high oil prices squeezed margins. The rescue deal by Jet's lenders, led by State Bank of India, includes funding through a mix of equity infusion, debt restructuring and sale or leaseback of aircraft.

Jet will seek approval from its shareholders at a meeting on February 21 for conversion of its debt into 114 million shares. It currently has 113.6 million shares on issue. The plan gives lenders the ability to appoint nominees to the airline's board.

Jet said that after its approval, the plan will be presented back to the lenders as well as to an overseeing committee of the Indian Bankers' Association, the board of shareholder Etihad Airways and Jet's founder and chairman Naresh Goyal.

Abu Dhabi's Etihad, which owns 24 per cent of Jet, bailed out the Indian airline in 2013, paying $600 million for a 24 per cent stake in Jet, three take-offs and landing slots in London Heathrow and a majority share in Jet's frequent flyer programme.