Banks may seek quick refuelling after Jet default

Lenders to Jet Airways are expected to step up pressure on the management to recover unpaid dues and raise money through equity or sale of assets after the airline revealed that it had defaulted for the first time in December.

Jet shares crashed on Wednesday and rating agency ICRA downgraded its debt to D from C, a rating usually given to companies in default or which are going to default.

"There have been delays in the implementation of the proposed liquidity initiatives by the management, which have aggravated its liquidity," ICRA said in a statement. "The company has already been delaying its employee salary payments and lease rental payments to the aircraft lessors."


The airline's share price ended at 263.75 on Wednesday, down 6.16%, after Jet informed exchanges about the default late on Tuesday night. The airline has a debt of about 8,000 crore.

"...the payment of interest and principal instalment due to the consortium of Indian banks (led by State Bank of India) on 31st December 2018 has been delayed due to temporary cash flow mismatch and the company has engaged with them in relation to the same," India's second-biggest airline by market share said.

Bankers are now expected to speed up discussions with Jet to repay and raise money to resolve the cash crunch.

"Lenders have already been in discussion with Jet Airways regarding the stress they were facing in terms of liquidity. With this default now, that discussion will gather speed. However, the next step can only be ascertained after we know how much stress the airline is actually in... whether it's short-term stress or a sign of a larger default. That we will know only in the days to come," said a senior banker from a public sector bank which is a lender to the airline.

The default is the latest and most serious issue facing Jet. The loss-making, cash-strapped airline has delayed salaries, laid off staff, grounded planes and pruned flights.

A person close to the development said Jet has failed to pay for the month of December which has put it in the SMA-0 category, which includes loans that are in default between 1 and 30 days. If Jet defaults beyond 30 days, it will go into SMA-1. Defaults between 61 days and 90 days is classified as SMA-2. If dues are not cleared for 90 days, it becomes a non-performing asset (NPA) for which banks have to set aside a provision in case of non-recovery.

According to a circular issued by the Reserve Bank on February 12 last year, as soon as a company defaults on payments for even a day, banks have to put the account under watch and undertake steps for recovery.

Jet Airways is a borrower from 26 lenders, according to its 2017-18 annual report. Bankers say with the acknowledgement of a default, the airline will be classified as SMA-0 in all bank books and lenders will have to monitor loans to Jet more closely.

"Furthermore, the company has large debt repayments due over December 2018 to March 2019 (Rs 1,700 crore), FY20 (Rs 2,444.5 crore) and FY21 (Rs 2,167.9 crore). The company is undertaking various liquidity initiatives, which includes, among others, equity infusion and a stake sale in Jet Privilege Private Limited (JPPL), and the timely implementation of these initiatives remain critical to its credit profile," the ICRA statement added.

Jet has been trying to coax strategic partner Etihad Airways to buy more stake in the carrier, but the Gulf airline won't budge unless it gets founder chairman Naresh Goyal's controlling stake. Goyal isn't willing to cede. Etihad owns 24% in Jet.

Jet has asked SBI and the lending consortium for liquidity assistance or alternatively, to convert loans to equity. The lenders have said they won't provide any assistance until Jet's founders and shareholders put in cash into the airline.