Cash-Strapped Jet Airways Defaults On Repayment Schedule

Jet Airways has failed to repay its lenders amid ongoing cash crunch and financial stress. The company said in an exchange filing that it has missed payment of interest and principal instalment due on Dec. 31, 2018 to a consortium of Indian banks led by India’s largest lender State Bank of India due to “temporary cashflow mismatch.”

Jet Airways had earlier mentioned that its liquidity position is stretched, and it has been delaying some payment to vendors and employees. It is the first time that the private carrier has defaulted on a loan repayment. The Naresh Goyal-led airline owed as much as Rs 3,364 crore to Indian banks as on Sept. 30, 2018 and needs to meet a debt repayment obligation of over Rs 1,500 crore in the current financial year. SBI has already ordered a forensic audit of the airline’s accounts for the last four financial years.

India’s second-largest airline has been considering a range of options, including selling aircraft, capital infusion and a stake sale in its loyalty programme, to meet its debt repayment obligation. However, none of the plans have so far fructified.

The company’s long-term ratings were downgraded thrice in the last six months due to delays in the implementation of the proposed initiatives to ease tighter liquidity conditions. The airline has also been holding back on salary payments and lessor obligations.

ICRA had earlier downgraded the long-term ratings on Jet Airways to ‘C’ — considered to have a very high risk of default regarding timely servicing of financial obligations.

Jet Airways has been struggling to hold ground in the world’s fastest-growing aviation market as cut-throat competition triggered a price war, at a time when crude prices were headed higher.

In November, the debt-laden carrier cut capacity as passenger growth declined. The Mumbai-based airline has reported a loss of Rs 3,656 crore for the last three quarters, which is more than the company’s market capitalisation of Rs 3,200 crore.

This, however, is not the first time when Jet Airways is finding it difficult to repay debt. In April 2013, the airline sold a 24 percent stake to U.A.E.-based Etihad Airways. It also sold stake in its loyalty programme JetPrivilege while receiving a bank guarantee from Etihad for $150 million.

Despite receiving support of over Rs 3,600 crore from the Etihad group five years ago, Jet Airways again needs a fund infusion. According to Ashish Shah of IDFC Securities, the default is on expected lines and an equity infusion is a must to resolve the debt problem of Jet Airways. Shah also expects the lenders to extend the payment deadline only if the forensic audit started by the SBI doesn’t come out with “anything negative”.

SBI, Indian Overseas Bank, Canara Bank, Syndicate Bank and Yes Bank are among the lenders who gave loans to Jet Airways.