The loss-making Jet Airways is going to sell its majority stake for as less as one rupee as a part of the bailout plan. Here is a brief explanation of the complicated arrangement that will be voted upon on 21 February by its board and is hoped to bring the Indian carrier back on track.
After the Indian government ended the state monopoly in aviation in the 1990s, Jet Airways was founded by Naresh Goyal. At present, Abu Dhabi's Etihad Airways PJSC owns 24 percent stake in India's largest full-service airlines.
What went wrong?
In a bid to compete with the budget carriers that were flooding the airline market in the mid-2000s, Jet Airways offered tickets to passengers at lower fares, sometimes even below cost. The provisional tax of 30 percent on jet fuel added to the burden.
Price-conscious travellers in India refused to pay a premium for onboard meals and other entertainment services, which Jet Airways being a full-service airline started proving mostly for free.
Eventually, the carrier's losses mounted and it now has Rs 72.99 billion in net debt. This further led to default in loans and delayed payments to staff.
The rescue plan
On 14 February, the board of Jet Airways agreed on a Bank-Led Provisional Resolution Plan (BLPRP), which is a procedure applicable for the revival of companies with negative networth. It will allow the lenders to become the largest shareholders in the carrier.
As per the RBI norms, a part of the debt would be converted into 11.4 crore shares that will be worth one rupee a piece. These group of lenders will be led by the State Bank of India (SBI).
The plan will have to be approved by all the lenders, National Investment and Infrastructure Fund (a government led group), the board of Etihad and founder Goyal.
The structure will be temporary and for the purpose of raising equity (funds) to get Jet Airways back on its feet. It will basically convert debt into equity
Inputs from Bloomberg