Why SBI is going out of its way to save Jet Airways

Is the government-controlled SBI (State Bank of India) bending the RBI rules to save the troubled Jet Airways? The discrepancy in the RBI's circular last February and Jet Airways' debt resolution note seems to suggest so.

On February 14, the troubled airline Jet Airways announced a bank-led provisional resolution plan (BLPRP) that detailed the plans of Jet's lenders, led by SBI, to take over the airline, and appoint a new board to revive the struggling carrier.

"Conversion of lenders' debt into 11,40,00,000 shares of Rs 10 each by allotment of such number of equity shares to the lenders that would result in the lenders becoming the largest shareholders in the company. Such allotment of 11,40,00,000 shares will be made at an aggregate consideration of Re 1 since under the RBI circular, lenders can convert debt into equity at Re 1 when the book value per share of a company is negative," said the Jet note. As on March 20, Jet's book value was (negative) Rs 919.94 crore.

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So while Jet's lenders are avoiding bankruptcy, experts argue that IBC route is better for them than going for a resolution plan. "The alleged government's interference would at best give a short lifeline to the struggling carrier," says an aviation consultant. A legacy carrier, Jet is sitting on some valuable assets-16 owned planes which are worth $400 million, Jet Privilege program, and landing & parking slots in key cities-that can be either easily monetised by its lenders (under IBC) or makes the airline an attractive option for the potential buyers. Tata Group, which had evinced interest in buying Jet some months ago, allegedly wanted Goyal before they take the driver's seat at Jet. They wanted to derive synergies between Vistara and Jet, which needed Goyal to hand over the reins. With a plenty of differences emerging among its key stakeholders, the future of Jet has never been as uncertain.