A notice threatening insolvency proceedings over Rs 25 lakh that grounded Jet Airways owes to a service provider could disrupt the lenders' rescue plan. The airline, which is under Rs 8,500 crore debt also owes service providers and vendors close to Rs 3,500 crore, according to aviation sources.
Rajan Rakesh & Bros has given the airline, which grounded all flights from April 17, time of 10 days to clear the dues or face litigation in National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC). A consortium of banks led by the State Bank of India (SBI) is trying to find a strategic buyer and other investors to rescue India's oldest private airline.
The disgruntled service provider sent the notice to Jet last week, the Economic Times reported. The notice warns the airline of proceedings under the IBC, saying that "corporate insolvency resolution process" would be initiated if the airline fails to pay Rs 25.68 lakh within 10 days. Rajan Rakesh & Bros, the operational creditor with The Mirador, says it has not received any payment from the airline since January 2.
A petition before the NCLT would mean further delay to the execution of the rescue plan for which four potential investors have submitted their expressions of interest (EoI). They include UAE national carrier Etihad Airways, which already owns 24 per cent stake in Jet, being the largest shareholder apart from the lenders who control 50.1 per cent stake. Legal experts point out that even if the petition is not finally admitted and is dismissed, the proceedings could damage the faith of investors in the viability of the rescue plan.
The banks will be the worst sufferers with the potential investors driving a harder bargain for the lenders to take a deeper haircut. Some reports say the bidders, who are expected to submit their binding bids by May 10, have hinted at demanding up to 80 per cent haircut, forcing the banks into the dilemma of whether to salvage at least 20 per cent of the dues or to forego 100 per cent with the Jet going into insolvency.
Though the tribunal has to decide to admit or dismiss the plea in two weeks, the case could drag on once admitted. The tribunal could appoint a resolution professional and a committee of lenders to consider and clear a resolution plan in 180 to 270 days, experts say. If the lenders do not approve the resolution plan, the company will go into liquidation.
The lenders have said they would not take Jet to the bankruptcy court, but any of the service providers or vendors to the airline can potentially drag the airline to court over any money due, imperilling the rescue plan or increasing its cost to the lenders. A way out would be for the lenders as the largest shareholders to pay off the creditors to save the company the bankruptcy woes.
Jet Airways owes 11 banks, including nine Indian banks, about Rs 11,261 crore, according to a report in Mint. Its debt to the nine Indian domestic banks amounts to Rs 7,251 crore. Of them, India's largest public sector bank State Bank of India (SBI) has the largest exposure to Jet at Rs 1,958 crore or 27 per cent of the airline's debt burden. Punjab National Bank (PNB) has the second largest exposure at Rs 1,746 crore. The other banks with considerable exposures to Jet Airways' debt include Yes Bank, IDBI, Canara Bank, ICICI Bank, Bank of India, Indian Overseas Bank and Syndicate Bank. Jet Airways also owes $330 million or Rs 2,100 crore to Dubai-based Mashreq Bank and the HSBC Middle East, according to reports.
The Naresh Goyal-founded airline has some 22,000 employees, who have not been paid for months. The government of Prime Minister Narendra Modi which is in the midst of a fractious general election may not want a high-profile airline to close down, giving ammunition to the opposition, which is already using the job creation data as a campaign point. A Reuters report said the government has instructed the state-owned banks to ensure that the airline does not sink. But the lenders will find it tough to keep it afloat one the matter reaches the bankruptcy tribunal.