One of India’s biggest airlines- Jet Airways is being sold for 1 rupee in a bid to revive the carrier that was on the verge of collapse. Mumbai-based Jet Airways, which needs Rs 73 billion to help it get back on its feet, will be revamped with banks becoming the biggest shareholders of the company.
Banks will own 114 million shares of Jet Airways after the restructuring. The arrangement will reduce the carrier’s debt by only 1 rupee.
The proposal, reached after weeks of negotiations, may provide a respite to the struggling carrier, part-owned by Etihad. Jet Airways still faces intense competition from low-cost rivals, high fuel costs, and levies – conditions that have brought it to its knees. It has more accumulated losses than any publicly-traded Asian airline apart from Pakistan International Airlines.
The proposed bailout, advanced by State Bank of India, needs approvals from all lenders, a banking industry group, Jet Airways’ founder Naresh Goyal and the board of Etihad, according to the statement. Jet Airways has called for an extraordinary general meeting on February 21 to seek shareholder consent for the deal and to name lenders’ nominees to the board.
Etihad acquired the stake in Jet Airways in 2013 as part of its hunt for fast-growth markets around the world. But, India proved to be a tough market to crack despite world-beating passenger numbers, as provincial taxes of as much of 30% makes jet fuel the costliest in Asia.
History of fallen airlines in the country
Jet Airways, one of the first private Indian airlines to dominate the local market after the government ended state monopoly in the early 1990s, has now been forced to cancel flights to smaller destinations as it falls behind on payments to creditors and employees. It had 80.5 billion rupees of net debt as of September 30.
The rescue package is reminiscent of a similar bailout of Kingfisher Airlines in 2011 when lenders including SBI converted existing debt into the loss-making company’s shares. But the carrier shut down three years later.
Competition and high costs triggered Kingfisher’s collapse, while state-owned flag carrier Air India has needed repeated bailouts. Even budget airline SpiceJet teetered in 2014 before its founders returned to gain control and revive the company. Jet Airways has reported losses in all but two of the past 11 years.