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Lessors may take back planes from cash-strapped Jet Airways: Report

Anshuman Daga & Aditi Shah | Reuters/Singapore/New Delhi 11 Jan 19 | 02:45 PM

Jet Airways

Crisis talks between cash-strapped Jet Airways and aircraft lessors have failed to ease a row over late payments, prompting some lessors to explore taking back aircraft, three people familiar with the matter told Reuters.

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In what one of them described as an ill-tempered showdown between the airline and some of the world’s leading leasing firms, Jet’s main lender, State Bank of India (SBI), sought to provide reassurance the carrier is doing all it can to pay its staff, suppliers and creditors.

“Jet has been delinquent for many months. Nobody wants to get in a situation where the problems worsen, and it becomes even more difficult to take out aircraft," one of the people said. Jet controls over a sixth of a market experiencing an unprecedented boom in air travel. Yet high fuel taxes, a weak rupee and price competition have squeezed profitability, leaving Jet with Rs 8,000 crore in net debt as of September, and defaulting on payments.

An official from the Directorate General of Civil Aviation said no leasing company has asked the regulator to deregister Jet’s planes, while lessor Dubai Aerospace Enterprise is continuing to support the airline.

“Jet is a great brand undergoing some challenging market times. We fully support their initiatives, and stand by as a partner to help them," said Firoz Tarapore, CEO of DAE. 

An official representing one of the lessors of Jet said “We are staying course. As of now"

The airline had previously told some lessors it would clear arrears by December 31, but was unable do so, the people said.

At meetings on Tuesday, held at SBI’s headquarters in Mumbai, the bank’s Chairman Rajnish Kumar was asked how Jet planned to raise equity or debt, said one of the people — an attendee — who found the responses lacked sufficient detail. Other attendees included Jet’s management team, including, the airline’s Chairman Naresh Goyal. A senior advisor of Etihad Airways, which owns 24 percent of Jet, was also present but did not provide any assurances, the person said.

An official from Punjab National Bank later said lenders have “in-principle" agreed to extend some help to Jet, but details on the mechanics are being worked out.

Some lessors have engaged with lawyers, are working with their technical teams about repossession and monitoring the planes. But, the situation could be complicated by a new bankruptcy law that allows up to 270 days, where no action is permitted against the debtor or its assets, the person said.

Lessors such as GE Capital Aviation Services (GECAS), SMBC Aviation Capital and Jackson Square are looking into stopping the transfer of Boeing 737 MAX jets that had been due for delivery to Jet, the person said. A second person said deliveries of the 737 MAX jets from lessors had been behind schedule since November.

Avolon, DAE Aerospace, BOC Aviation and Aircastle also attended the meetings, along with GECAS and SMBC, one of the people said, declining to specify which one of them is considering to reclaim the planes. Jet Airways, in a statement on Friday, said the airline is working on its turnaround strategy and updating its partners to improve its liquidity.

“A comprehensive plan that will ensure business sustainability, preserve value, and enable the company to honour its obligations was outlined," a Jet spokesman said, adding the meeting took place in an atmosphere of cordiality and mutual appreciation. The turnaround plan involves creating a competitive cost structure and restructuring the balance sheet, among other things, and is expected to “deliver a positive impact on the financials of the company," he said.

SBI and SMBC Aviation did not immediately respond to requests for comment. DAE Aerospace, GECAS, Aircastle and Jackson Square did not respond outside of regular business hours. Etihad, BOC Aviation and Avolon declined to comment.

The people familiar with the talks were not authorised to speak publicly on the matter, and so declined to be identified.

Financial help

Jet has turned to Etihad for financial help. However, it is not “in any position to sink new equity at this juncture," said a person familiar with Etihad’s position. Etihad posted a “significant loss" at the end of last year that would continue into 2019, according to an internal memo seen by sources on Thursday. The memo also showed 50 pilots would lose their jobs as the airline cut costs.

Jet held talks with Tata Sons about financial aid last year. Sources told Reuters Goyal ended the talks because Tata would have wanted him to step down, or take a less prominent role.

A source close to Tata on Thursday said there had been no recent engagement with Jet, and doing so was “extremely unlikely" because Tata people had “moved on internally". Tata Sons, too, declined to comment.

After the disorderly collapse of Kingfisher Airlines in 2012, the rules were modified in line with the Cape Town convention, an international treaty making it easier for foreign owners to repossess aircraft when airlines default on payments.

(With inputs from Aneesh Phadnis & Arindam Majumder)


What happened at Tuesday's meeting

SBI (Jet's main lender) was asked how the airline planned to raise equity or debt, said one of the attendees, who found the responses lacked sufficient detailSBI Chairman Rajnish Kumar sought to provide reassurance to the lessors that the carrier was doing all it can to pay its staff, suppliers and creditors 

Lessors search for different options

Some lessors have engaged with lawyers and they are working with their technical teams about repossession. But repossessions could be complicated by the new bankruptcy lawLessors such as GE Capital Aviation Services, SMBC Aviation Capital and Jackson Square may stop deliveries of Boeing 737 MAX 

What Jet says

“A comprehensive plan that will ensure business sustainability, preserve value, and enable the company to honour its obligations was outlined"

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