Trouble for banks as Jet Airways’ other creditors approach bankruptcy court

Caught on the wrong foot.
Caught on the wrong foot.
Image: REUTERS/Francis Mascarenhas
We may earn a commission from links on this page.

There’s more trouble for beleaguered Indian airline Jet Airways—and its lenders.

Two of the carrier’s suppliers, Mumbai-based Shaman Wheels and Ahmedabad’s Gaggar Enterprises, have approached National Company Law Tribunal (NCLT) to initiate insolvency proceedings against it, the Economic Times newspaper has reported. They have filed their plea under the insolvency and bankruptcy code (IBC) to recover their dues. Now, all eyes are on the the Mumbai bench of the NCLT, scheduled to hear the matter today (June 10), the report said.

“If the petition is admitted, it’s the end of the road for the airline,” a banker aware of the development told the publication. “We are not very hopeful of recovering our dues in bankruptcy as the other liabilities are much bigger than bank loans. We will have to see if other creditors will be treated on par with financial creditors.”

A consortium of banks, led by the State Bank of India (SBI), has taken management control of the carrier and asked SBI’s investment subsidiary, SBI Capital Markets to overlook the sale process of the carrier which has a debt of over Rs9,000 crore (around $1.3 billion).

On April 17, Jet Airways temporarily shut operations after the lenders denied to infuse emergency funds.

Tough road ahead

An insolvency proceeding is against lenders’ interest as they have extended loans to Jet against no collateral. Thus they are trying to avoid court-monitored insolvency proceedings at any cost.

“The loan was given against brand value and no tangible collateral. If the airline goes into insolvency, banks would not be able to recover any value,” a person close to the development told .

There have been reports potential bidders approaching the SBI but nothing has worked yet. If insolvency proceedings begin, the chances of finding a suitable buyer will further slim.

If a company is unable to repay within 10 days of a notice for recovery under IBC, creditors can sue it. It should also be noted that the case under NCLT does not guarantee a full recovery, in some cases the petitioner gets just a fraction of the entity’s value.

In any case, Shaman Wheels,  which sells new and used passenger vehicles trucks, trailers and semi-trailers, and Gaggar Enterprises that supplied packaged drinking water to the airline, aren’t the only ones that could spell trouble for lenders. On April 15, Rajan Rakesh & Bros., a service provider to Jet Airways, sent a notice to Jet, threatening to commence insolvency proceedings against it. The company, claiming Rs25.68 lakh of arrears, said it has received no payments from the airline since Jan. 2, ET reported.

Jet’s troubles have gone beyond the border, too. In May, an Amsterdam court declared the airline bankrupt following pleas by two foreign lenders. No appeal on behalf of the grounded airline has been filed yet, as lenders, and what remains of Jet’s management, are still “deliberating ways to control the damage”, a media report claimed.