Jet Airways’ problems are far bigger than just the Rs11,000 crore it owes the banks

Image: REUTERS/Francis Mascarenhas
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The debt that Jet Airways owes banks is only the tip of a giant iceberg given what it owes to other creditors. And that may jeopardise its sale.

The carrier’s lenders, who took control of the airline last month, may have to make substantial write-offs on their exposure if the company has to become attractive to prospective buyers. The lenders, a consortium led by the State Bank of India (SBI), are currently trying to sell off the airline with the last date for submitting binding bids being May 10.

A new buyer will, however, have to deal with debt far in excess of the Rs11,261 crore ($1.6 billion) that Jet owes the 11 banks in the consortium, believe analysts.

“The total amount that Jet owes to other firms that it had business dealings with in terms of fuel cost, charges for leasing of aircraft, salary dues to employees, ticket refunds to passengers, etc. will be significantly more,” said an analyst who is working with banks on the resolution process of Jet, requesting anonymity. “I would easily peg it to be over Rs16,000-Rs17,000 crore or even more.”

In fact, Ajay Singh, chairman and managing director of the budget carrier SpiceJet, has pegged Jet’s debts to be even higher at Rs25,000 crore. He cited it as one of the reasons for his firm not bidding for the grounded airline.

Of those who have expressed interest in buying Jet so far, four have been reportedly shortlisted—the Abu Dhabi-based carrier Etihad Airways, which is currently a minority shareholder in Jet, American private equity investors TPG Capital and Indigo Partners, and the Indian-government backed National Investment and Infrastructure Fund (NIIF).

Jet Airways last flew on April 17 and temporarily suspended operations after banks denied the company emergency funds of Rs400 crore to stay airborne.

What a mess

Though it is not clear what Jet’s valuation might be, two analysts that Quartz spoke to pegged it at no more than Rs3,000 crore.

“As a result, the company that finally takes over Jet will also look to settle dues by demanding huge haircuts (from its various creditors). The shareholders are already negotiating that with the banks and they will end up doing something similar with other creditors as well,” said the analyst quoted earlier.

In fact, the banks may not end up getting more than Rs3,000 crore, which is barely a quarter of the amount Jet owes them, he added.

Apart from losing its prime slots at domestic airports and passengers to other airlines, Jet’s brand image has also taken a severe hit. The new owner will also be tasked with restoring the confidence of investors and flyers. “After a new owner takes over and they ensure that all payables are on time, then slowly and steadily the brand image can get back on track as it will be treated as a new company,” said Kinjal Shah, analyst at credit rating agency ICRA.