Will Lessors Repossess Jet Airways’ Planes?
The talks between India’s Jet Airways Ltd and aircraft lessors prompted some lessors to explore the option of taking back Jet’s aircraft.
The airline had previously told some lessors it would clear arrears by Dec. 31, but was unable do so.
Jet has been delinquent for many months. Jet’s main lender State Bank of India sought to provide reassurance that India’s biggest full-service carrier is doing all it can to pay its staff, suppliers and creditors.
At meetings on Tuesday, held at SBI’s headquarters in Mumbai’s business district, the bank’s Chairman Rajnish Kumar could not convince anybody when asked how Jet planned to raise equity or debt. Even Etihad Airways, which owns 24 percent of Jet is reluctant to give any assurance. 50 Etihad pilots are going to lose their jobs as the airline looks to cut costs.
Jet, led by Goyal, also held talks with Indian conglomerate Tata Sons Ltd last year. The talks ended because Tata did not see any merit in Jet’s proposals. Since then, Tatas had “moved on internally”.
The lenders may have “in-principle” agreed to extend help to Jet, but they are unable to work out any mechanism for it. Since time is running out, so is their patience. Some lessors have began legal and technical formalities about repossession and are monitoring the planes.
The repossession process, though, is complicated in view of the new bankruptcy law that allows up to 270 days where no action is permitted against the debtor or its assets. This, in no way, suggests any relief for Jet.
This was inescapable after the jumbled fall of Kingfisher Airlines in 2012. KF failed to clear its dues to banks, staff, lessors and airports. Then, India changed its principles in accordance with the Cape Town convention, an international treaty making it little difficult for lessors to repossess the aircraft when airlines default on payment installments.
As such, lessors such as GE Capital Aviation Services (GECAS), SMBC Aviation Capital and Jackson Square may stop the transfer of Boeing 737 MAX jets that had been due for delivery to Jet. Deliveries of 737 MAX jets from lessors had been behind schedule since November.
Other lessors like Avolon, DAE Aerospace, BOC Aviation Ltd and Aircastle Ltd may be on the same page with GECAS and SMBC while considering reclaiming of Jet’s planes.
Lessors can also file a complaint with the government which can cancel the registration of a plane within five working days and allow lessors to repossess it subject to certain conditions, including unpaid dues on the aircraft.
Irrespective of the situation, a possibility of ill-tempered showdown between Jet Airways and world’s leading leasing firms can not be ruled out. An atmosphere of cordiality and mutual appreciation may no longer persist.
Jet today has been left with 80.52 billion rupees ($1.14 billion) in net debt as on September end and defaulting on payments along with excuses of high fuel taxes, a weak rupee and price competition, assurances for payments and no visible signs of any revenue generation in near future.
As per the credit-ratings firm ICRA, Jet’s liabilities will only swell over the next few months, starting with about 17 billion rupees due by March-end.
In view of the foregoing considerations, lessors consider repossession a viable proposition.