Timeline of Crisis Events at Jet Airways
- May-2018: Posted first unexpected loss in 11 quarters. Networth turns negative.
- September-2018: Income Tax raided corporate offices.
- October-2018: ICRA downgrades Jet Airways’ debt.
- December-2018: defaulted on debt repayment
- March-2019: Naresh Goyal steps down from the board.
- April-2019: Shuts operations.
- June-2019: NCLT admitted Jet Airways into IBC.
- October-2020: Bid by Kalrock-Jalan consortium approved by CoC.
- There are no financials to discuss under the financial performance section. Due to IBC, the airline has not published results for Ql, Q2, Q3 of FY21.
- Last financials as of 31-3-20 shows auditor has given disclaimer opinion (means they are unable to give opinion due to lack of data). Besides that, they have raised 10 grave issues in the financial statements of co.
- Resolution professional is unable to publish consolidated results due to a lack of data from group companies.
- Financial position as on 31st-March-20
The winning bidders Kalrock-Jalan consortium will pay Rs 1183 crore over five years to stakeholders (creditors, employees, etc.) of the airline.
This amount is just 8% of Rs 15000cr admitted dues. The amount is also lower than the current market capitalization of Rs 1539 cr. Hence as per Murari Lal Jalan-led consortium, the offered intrinsic value of the share is lower by 23% of the current market price.
Who is getting how much? (in Cr)
- Above Rs 1183 is not an upfront payment but will be paid from internal accruals, sales of assets and cash flow from operations once resume.
- The consortium has offered to buy 51% of Etihad Airways’ stake in Intermiles (Jet Privilege), loyalty program unit and get another 41.5% stake through resolution plan while financial creditors will have a 7.5% stake.
How Equity Shareholders will lose 99% of their wealth?
Above is the shareholding pattern of Intermiles, not Jet Airways. Since lenders are getting paid only 8% of their claim, equity shareholders should not expect anything bright from new owners.
How the existing shareholders will be at a huge loss due to capital reduction or equity dilution?
So public or retail shareholding will be down from 25% to 0.21%. That’s 99% equity dilution or reduction.
In other words, 99% of the wealth of the current shareholder will be destroyed. For example, if you currently hold 10000 shares of Jet Airways, after the resolution plan you will have just 84 shares in the new entity.
How this will happen?
Existing paid-up capital will be reduced and new shares will be issued to new shares so as to give him a majority stake.
This is called reduction/extinguishment/dilution of existing shares.
And this is not the first-time equity shareholders of stressed companies are in the lurch.
Ruchi Soya Case: Erstwhile shareholder get only one share in new Ruchi Soya against 100 shares in old Ruchi Soya
DHFL Case: Piramal plans to write off existing equity shares and delist it.
Then why share price rising: 1. technical reasons like high volumes. 2. New management’s positive interview which hopes to resume operation soon.
Murali Lal Jalan Interview Highlights
- Plans to resume operations in next 4-6 months ( earlier it was supposed to resume in summer 2021)
- International operations will be resume by end of the year.
- In the first year, the airline will operate with 25 aircraft.
- Very positive on the Indian aviation industry.
- No funding or investor is required for the next 2-3 years.
- Everything is going on track and on time.
- Govt has assured us we will get back slots of erstwhile Jet Airways.
Future of Jet Airways: Headwinds Ahead
- The most important issue is getting back slots (route rights), since DGCA has already granted Jet Always’s slots to other airlines after it shut down in April 2019. Moreover, other airlines also bought resources
- Team of professionals like CEO, COO are yet to be hired since consortium has no experience of the airline.
- Employees who lost most due to crisis may resist working with it.
- Airlines are already at loss due to low capacity, rising crude prices. (Indigo reported a loss of Rs 627 crore with a daily cash burn of Rs 15 crore.
- NCLT gets to approve the resolution plan.
- Around 40 legal cases are pending related to Jet Airway.
- Financial frauds and miscarriages done by erstwhile promoters need to be clean from books which can lead to booking huge exceptional losses in future quarters.
Conclusion: Can it scale the same sky heights again?
There are many legal and operational hurdles in front of airlines to resume operations.
Further, it will take years to be a profitable venture. Considering these factors along with 99% equity dilution for current shareholders it’s better to avoid or sell it for now.
That’s the future of Jet Airways in our opinion.
Cover Image: MyNation