Jet Airways misses a loan repayment and gets downgraded again, further compromising owner Naresh Goyal’s plans to retain control of the airline

• Ratings agency ICRA said that it has downgraded Jet Airways’ borrowing programme, comprising long and short-term debts of around ₹109.6 billion, to a “D” classification, implying a high risk of default.
  
• In a stock exchange filing on the last day of 2018, Jet Airways announced that it had defaulted on principal and interest payments to a group of lenders led by the State Bank of India (SBI).
  
• Prior to this, Jet Airways had failed to raise a loan of around ₹15 billion from SBI to meet its maturing debt and working capital obligations in the immediate term.
  
• All of this further jeopardises Goyal’s plan to retain control of the airline after raising fresh funds.
  
  

After a particularly testy 2018, Naresh Goyal, the owner of cash-strapped airline Jet Airways, would have been looking to begin 2019 on a different note. However, that wasn’t to be.

On Wednesday, ICRA, a domestic ratings agency, said that it had downgraded Jet Airways’ borrowing programme, comprising long and short-term debts of around ₹109.6 billion, to a “D” classification, implying a high risk of default. The downgrade, which was Jet Airways’ fifth in the past two years, followed a loan default by the airline two days prior.

In a stock exchange filing on the last day of 2018, Jet Airways announced that it had defaulted on principal and interest payments to a group of lenders led by the State Bank of India (SBI) - the first time it had defaulted. In a bid to downplay worries, India’s second-largest airline said that this was due to a “temporary cash flow mismatch.”

More accurately, Jet Airways had failed to raise a loan of around ₹15 billion from the State Bank of India (SBI) to meet its maturing debt and working capital obligations in the immediate term. The bank had reportedly told the airline’s owners that they needed to infuse more cash into the company.

The airline has been unable to pay its employees and some of its vendors. Like some of its rivals in the Indian aviation sector, it has been dealing with liquidity issues, high debt levels and a series of operating losses.

While it has implemented a number of initiatives to cut costs and raise cash, such as the renegotiation of maintenance contracts and the sale and leaseback of aircrafts, its financial health depends on a sustained reduction in the prices of jet fuel.

All of this further jeopardises Goyal’s plan to retain control of the airline after raising fresh funds. He had been trying to court partner Etihad Airlines, which has a 24% holding, to increase its stake in Jet Airways as opposed to an outright purchase by Tata which would havely likely seen him unable to retain even a minority shareholding.

While the deal is yet to come to fruition, Etihad has agreed to be a guarantor for Jet Airways’ fresh loans. This is, of course, contingent on Jet Airways actually being able to raise new debt capital.

Time is running out and so are Goyal’s options. The airline has ₹17 billion worth of debts to pay back before the end of the financial year. If Goyal is unable to close a deal, the airline might have to undergo insolvency proceedings, which seems a more unfavourable outcome than a loss of control via an outright sale.


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