Jet's crisis deepens as Etihad, lenders lock horns

Etihad said it would not participate in the rights issue or infuse fresh funds under the current terms and conditions of the resolution plan

Tony Douglas, the chief executive officer of Abu Dhabi-based Etihad Airways, flew down to Mumbai on Monday morning for an unusual meeting with State Bank of India (SBI) chairman Rajnish Kumar and a few other top bankers to discuss the sticky issues in the rescue plan for Jet Airways.

At the end of the meeting, the crisis seemed to have deepened as Etihad, which holds 24 per cent in Jet, refused to agree on the contours of the deal.

According to sources aware of the development, Douglas has informed a consortium of lenders, led by SBI, that Etihad would not participate in the rights issue or infuse fresh funds under the current terms and conditions of the resolution plan.

It is learnt that the lenders made it clear to Etihad that it must either endorse the bank-led resolution plan or convey to them that it’s not willing to put in more money.

The bankers also told the airline that they are willing to take “hard decisions’’, hinting that they could think of taking Jet to the National Company Law Tribunal (NCLT) if a resolution fails.

Although Jet has run out of cash completely and has grounded half its fleet, the lenders have so far resisted any move to take the airline to the NCLT.

Dragging Jet Airways to the NCLT could mean a haircut of 55-60 per cent for the lenders. (The difference between the banks' outstanding loan and what they realise from the sale or liquidation under bankruptcy proceedings is referred to as a haircut.)

Another reason why lenders are trying hard to save Jet from bankruptcy is that the government wouldn’t like an airline going down so close to the Lok Sabha elections.

While the official statements issued by Jet and Etihad conveyed a sense of continuity, executives tracking the events closely indicated a deadlock over the current deal.

Even as Jet employees including pilots fear a shutdown of operation, founder chairman Naresh Goyal wrote a letter to the airline staff saying it was a ‘’complex process’’ and would therefore require more time.

"The complexity of the process has led to some delays and will require a further short time to conclude.

"I am personally committed to have the process completed as soon as possible and restore much needed stability to our operations at the earliest…

"Meanwhile, talks with our strategic partner Etihad Airways and lenders led by State Bank of India are ongoing. We are in constant dialogue with them," Goyal wrote while assuring the staff that their pending salaries would be cleared once all parties sign on the resolution plan.

Photograph: Reuters