India’s debt-ridden Jet Airways handed lifeline by Etihad

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With current debts of approximately US$1.14 billion resulting mainly from fierce competition, high oil prices and the depreciation of the rupee, India’s Jet Airways has agreed to the majority of terms laid down by Gulf carrier Etihad Airways (Etihad) in a much-needed financial bail-out and company ownership restructuring. Currently, Etihad holds a 24% stake in the airline which will increase to 40%, while current 51% majority shareholder Naresh Goyal will reduce his stake to 22% and step down from the board.

Jet Airways holds approximately one-sixth of the burgeoning Indian aviation market but owes money to banks, aircraft vendors and lessors, some of whom are threatening to repossess a number of aircraft. However, the stricken carrier is hoping to obtain shareholder approval in February to convert existing debt into equity while also allowing lenders to nominate directors to its board.

State Bank of India (SBI) is one of the principal lenders, but as yet has not confirmed how much of a stake it was prepared to take in the carrier if the equity swop is approved by shareholders. Combined, it is expected that lenders would end up with a 30% stake in Jet Airways through debt conversion.

According to Reuters, Jet Airways is also struggling with payment to pilots, though it had agreed to pay an outstanding 25 percent of salary for October and 75 percent for November by January, with the remainder cleared in tranches by April. The pilots’ union is hoping to meet with management next week to discuss the issue of outstanding wages.

The airline’s directors are expected to discuss the legal formalities of the deal and other details at a board meeting on February 14. If Jet Airlines agrees to the terms, Etihad will immediately pump in US$35 million.

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