– Hinduja halts negotiations, Etihad shelves plan to increase its investment
– Abu Dhabi-based Etihad was earlier keen to save its investment in Jet Airways, but now that plan is on the back burner
Hinduja Group and Etihad Airways PJSC may not proceed with plans to resurrect Jet Airways (India), dealing a severe blow to efforts aimed at rescuing the airline that has suspended flights for nearly two months.
London-based Hinduja Group has decided to halt negotiations to buy a stake in Jet Airways, while Etihad Airways of Abu Dhabi has put on hold a plan to add more investments in the Mumbai-based airline, said two people familiar with the matter, requesting anonymity.
“As far as bidding for Jet Airways is concerned, the Hinduja Group has taken a back seat now,” said one of the two people cited above. “The promoters of the group feel that it’s too risky for them to get involved (with Jet Airways) at the moment, due to ongoing government investigations and the recent insolvency pleas submitted by operational creditors at the National Company Law Tribunal (NCLT).”
Two operational creditors of Jet Airways, Shaman Wheels Pvt and Gaggar Enterprises Pvt, filed separate insolvency pleas on Monday against Jet Airways at NCLT, Mumbai, for recovery of their dues.
Adjourning the matter to Thursday, the bankruptcy court asked the creditors to serve notices on the airline for their dues.
“The NCLT process (after admission of plea by operational creditors) does have merit as it could mean a third party may invest in the airline,” the second person said. “There is still value in the brand and airline, though it looks a bit difficult to revive it right now.”
Meanwhile, the income tax department is probing possible tax violations by Jet Airways, while the corporate affairs ministry has ordered a probe into the books of the airline after the Registrar of Companies had submitted a report to the ministry highlighting instances of violation of the Companies Act in the airline. Separately, the Enforcement Directorate (ED) is trying to ascertain if certain foreign direct investment (FDI) norms were violated when Etihad took a stake in Jet Privilege Pvt (JPPL), Jet Airways’ frequent flyer programme, in 2014.
“The board of directors of Etihad Airways is also against investing further in Jet Airways. The Abu Dhabi-based airline was earlier keen to save their investment, but now their plan is on the back burner,” said the first person cited earlier.
Etihad Airways had in May confirmed its interest to reinvest in a minority stake in Jet Airways, subject to conditions. The Economic Times had then reported that Etihad could invest only up to Rs 1,700 crore in Jet Airways.
Queries sent to Etihad, Hinduja Group and State Bank of India (SBI) didn’t elicit a response till the time of going to press.
Etihad had in 2013 acquired a 24% stake in Jet Airways for $379 million (about Rs 2,060 crore then). It had also picked up a 50.1% stake in JPPL for $150 million (over Rs 900 crore then) in 2014.
According to details available on the website of the corporate affairs ministry, Shaman Wheels is a motor dealership in Mumbai and Gaggar Enterprises a mineral water producer in Ahmedabad.
However, if Jet Airways is admitted to NCLT, under bankruptcy resolution lenders may recover only a fraction of the Rs 8,400 crore the airline owes them. The total liabilities of the airline, including unpaid salaries and vendor dues, are nearly Rs 15,000 crore.
A lawyer advising one of the stakeholders of Jet Airways said that under the Insolvency and Bankruptcy Code, any admission of a plea by an operational creditor needs to meet the threshold criteria of good quality of services and undisputed dues.
“Operational creditors may not find it easy to meet the threshold criteria. But if they do meet the criteria, then the committee of creditors will be formed and a resolution professional will be appointed,” the lawyer said, requesting anonymity.
“Etihad Airways, which is an equity shareholder, will perhaps be last in the queue in getting anything in lieu of its investment,” the lawyer said. “Considering it is service industry, lenders may perhaps find value in brand valuation, aircraft and land.”
Lenders to Jet Airways, led by SBI, have been trying to resolve the insolvency crisis at Jet Airways outside NCLT due to fear of little or no recovery. Under the bank-led resolution process, Etihad had earlier agreed to invest in the grounded airline, provided it remained a minority investor.
On 27 May, Mint reported that lenders would take a final decision on the fate of Jet Airways in the next two weeks as they sought a new domestic investor before taking up the last option of a bankruptcy filing.
Jet Airways hasn’t flown since 17 April after it grounded all its operations due to an acute shortage of funds.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.