Jet AirwaysNSE -12.56 % is now slapped with a threat of the bankruptcy law.
Last week, one of the service providers to the recently-grounded airline shot a notice under the Insolvency and Bankruptcy Code of 2016 – warning Jet that ‘corporate insolvency resolution process’ would be initiated if the airline fails to pay up dues within 10 days.
The development could put further pressure on banks which are trying to find a strategic buyer and financial investors for the troubled airline.
According to the notice dated April 15 from Rajan Rakesh & Bros – the operational creditor with ‘The Mirador’ brand – the default amount is Rs 25.68 lakh. The firm, says the notice, has received no payment from Jet since January 2.
Banks’ efforts to cobble together a deal with investors could be delayed if the National Company Law Tribunal (NCLT) admits a petition filed by Rajan Rakesh & Bros under the insolvency code. Also, this could set the ball rolling for other operational creditors to join in.
“In such a situation banks would have to help Jet pay off creditors or appeal to the court that any insolvency proceedings would delay, and or even derail, the ongoing exercise to resolve the situation… It could be a hurdle for banks which have to anyway deal with bidders’ demands for deep haircut on loans to Jet and immediate interim finance to resume operations,” a person familiar with the issues told ET.
Lenders know that dragging Jet through the rigmarole of insolvency proceedings could dampen the chances of its revival. While the court is expected to admit (or dismiss) a petition within 14 days, it may take longer. This is followed by the appointment of a resolution professional and the formation of a committee of lenders which has to consider and clear a resolution plan over the next 180 to 270 days. If lenders do not approve the resolution plan, the company is pushed towards liquidation.
“It’s almost impossible for an airline to survive this process. Very little value can be derived through this. This is not a steel plant with fixed assets. Once the planes are taken away, slots are allotted to other airlines, and the best among the crew grab jobs that are on offer from rival carriers, there is little that would be left with Jet. Already, there are questions whether the bidders would be genuinely interested following the suspension of operations… I will not be surprised if these bidders put in a lot of preconditions,” said a senior lawyer.
The banking consortium led by India’s largest lender SBI has set a deadline of May 10 for submission of ‘binding bids’. Etihad (UAE’s second-largest airline which owns 24% in Jet), National Investment & Infrastructure Fund (NIIF), private equity investors TPG Capital and Indigo Partners have put in ‘expression of interest’.
“With Jet grounded, we don’t know whether a few of them would develop cold feet. They would take a hard look at the total liability and all outstanding amounts, not just the ones in which the company has defaulted,” said another person. Banks’ total loan outstanding with Jet is more than Rs 8,000 crore.
