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A Jet Airways passenger aircraft prepares to land in Ahmedabad. Etihad's decision to quit debt resolution talks has put the rescue plan in the doldrums. [Representational Image]Reuters file

The decision of Abu Dhabi-based Etihad Airways to quit the talks for resolving the Jet Airways debt crisis and its offer to sell its stake in the Indian partner may scupper a rescue plan that the State Bank of India (SBI) has been piloting, media reports suggest. Jet has been staring at an abyss with more flights getting cancelled every day as lessors ground aircraft over the payment defaults.

Etihad Airways, itself going through a bad patch, pulled out of the Jet debt resolution talks after its chief executive officer Tony Douglas failed to convince SBI chief Rajnish Kumar of conditions for taking part in the resolution plan. One of Etihad's key conditions was reducing founder Naresh Goyal's stake in the airline to minimal from the present about 17 per cent and removing him from management. Etihad was expected to pump in another Rs 1,800 crore of equity into the Indian carrier bringing its stake to 24.9 per cent, just below the threshold requiring the necessity of making a mandatory open offer.

The lenders' consortium that SBI represents at the talks is also expected to bring in Rs 1,000 crore by way of additional equity apart from converting the current debt into equity as agreed by the resolution plan that has received Jet shareholders' nod. Jet's fleet of about 120 aircraft has already shrunken by more than half while a threat by its pilots to go on strike from April 1 for salary dues has pushed the airline into further trouble amid mounting operational losses, a Bloomberg report said.

Etihad has offered to sell its 24 per cent stake to the SBI at a discount of Rs 150 a share. Jet Airways shares slumped more than 11 or nearly 5 per cent to close at 218 on Wednesday as news of the Etihad stand spread. Media reports said Etihad also wanted the SBI to take over its liabilities as a guarantor for Jet Airways' Rs 1,000 crore loan from HSBC Dubai. Jet has already defaulted on the repayment of this loan. Etihad has also offered to sell its 50.1 per cent stake in Jet Privilege, estimated to be worth Rs 1,000 crore to the state-owned lender. Jet Airways owns the remaining 49.9 per cent in the customer loyalty programme.

Etihad Airways
A Boeing 787 Dreamliner of Etihad Airways. Courtesy:

At the current market level, Etihad's shareholding in Jet is worth about Rs 400 crore. The Gulf-based airline had picked up this stake in 2013 for $379 million (valued around Rs 2,060 crore at that time). As the strategic partner of India's second largest airline has washed its hands off the resolution plan, sources think only the government intervention can rescue the beleaguered airline.

The resolution plan envisaged converting into equity Rs 450 crore that Jet Airways owed to firms Goyal controlled. Goyal has already infused Rs 250 crore into the airline in the form of additional equity taking his shareholding to 17.1 per cent.

Forbes magazine reported on March 15 that Etihad reported another disastrous year of huge loss even while it claimed progress with a restructuring plan. The UAE carrier flew 17.8 million passengers last year when compared to 18.6 million in 2017.and reported a loss of $1.28 billion in 2018. In comparison, Dubai-based Emirates reported a 4.3 per cent rise in passenger numbers to almost 58.5 million and 8.5 per cent rise in revenues to $25 billion with the profits more than doubling to $762 million.