Jet Airways Boeing 777 fleet at risk of repossession as airline delays bank repayment

Even as the SBI-led consortium of 26 lenders to Jet Airways kicked off the bidding process for a stake sale today, the beleaguered airline's woes continue to multiply. India's second largest airline till January is currently operating only 26 of its once 124-strong fleet and many of the aircraft grounded in recent weeks due to non-payment of lease rentals could get deregistered soon.

Last week, two of its lessors, MC Aviation Partners and Avolon, applied to the Directorate General of Civil Aviation (DGCA) for de-registration, which means that the lessors can take their aircraft out of country and lease them to other players. But now even the planes owned by Jet Airways may be at risk- it owns a total of 17 aircraft, mostly Boeing 777 and Airbus A330 planes, while the rest of its fleet is leased.

In September 2005, Jet Airways had signed a purchase agreement for 10 Boeing 777-300ER series aircraft with plans to start serving long-haul international destinations. According to The Economic Times, these aircraft were bought under a finance lease agreement. These work more like an EMI scheme whereby the lessee (Jet in this case) obtains ownership at the end of the tenure while in the case of operating lease agreements, the aircraft go back to the lessor.

Because of this factor, with Jet Airways having delayed repayments of over $18 million to global lenders- including Citibank- that had financed its purchase of the Boeing 777s on the back of guarantees from Export-Import (EXIM) Bank of the US, these planes are now at risk of being repossessed.

The daily added that in a presentation detailing the latest revival and fund infusion plan for Jet Airways, payments to EXIM Bank were estimated at Rs 1,433 crore. Under the circumstances, a guarantee invocation could sound the death knell for Jet Airways as the US institution would likely deregister and then repossess the planes. That would be a big blow for the already ailing airline since the Boeing 777s have been cited as collateral for additional loans that it aims to raise as part of the latest revival plan.

"There is a delay on the B777 payment. But the airline is within the cure period and in touch with the financer to ensure payment", a source in the know told the daily, adding there has been no default notice as yet. However, soon after it missed the due date in end March, Jet Airways reached out to the MNC banks requesting them to condone the payment delay and give the airline some time citing the revival package in the works.

Meanwhile, Reuters reported that about six more lessors are expected to apply to the aviation regulator to de-register up to 15 additional grounded planes over the next 10 days, signalling that the planned bailout of the debt-laden carrier is failing to assuage lessor concerns. About 100 of Jet's 119 mainly Boeing planes are leased by companies such as Avolon, GE Capital Aviation Services and AerCap Holdings.

Battling crises on multiple fronts, from grounded planes to disgruntled and unpaid employees threatening to go on strike, the buzz is that Jet Airways won't be able to operate beyond April if it doesn't get the entire promised debt funding of Rs 1,500 crore from its lenders post-haste. But the absence of investor interest, so far, has delayed disbursal.

While negotiations with Etihad Airways, which owns 24% of Jet Airways, have resumed after its founder Naresh Goyal stepped down from the board last week, the Gulf-carrier's insistence on a waiver of the open offer requirement as per Sebi's norms remains a bone of contention. As per Sebi's takeover code, if a company acquires more than 25 per cent in another listed company, it has to make an open offer to minority shareholders of the target firm.

The bidding process for the stake sale in Jet Airways ends on April 10. The fate of the airline, in large part, hinges on the investor interest it now receives.

(Edited by: Sushmita Choudhury)

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