Jet Airways, India's largest privately-owned airline, has approached the US Exim Bank and European export credit agencies to reschedule a $2 billion loan (Rs 10,000-crore) loan that was raised to buy 27 Boeing and eight Airbus aircraft.
With operating losses mounting to Rs 1,237.34 crore in the first three quarters of 2008-09, as a result of slowing passenger traffic (see table), Jet is finding it difficult to meet the annual repayment obligation of Rs 1,200 crore (principal of Rs 900 crore plus interest of Rs 300 crore) on these loans. The annual interest rate on these loans is 4 to 5 per cent.
Jet also has debt obligations of around Rs 5,000 crore from Indian banks. Of this, it raised Rs 2,000 crore in the last two quarters to cover part of its operational expenses.
The airline, therefore, has an overall debt exposure of Rs 15,000 crore on a net worth of Rs 3,063 crore, giving a gross debt-to-equity ratio of 4.13 times. Jet's plans to mop up $400 million in 2008 to bolster its net worth were indefinitely deferred, owing to poor market conditions.
Sources close to the development said US Exim Bank extended Jet a guarantee of around $1.3 million to buy six wide-bodied Boeing 777, orders for which were placed in 2007-08, and 21 Boeing 737 aircraft. These loans typically have 12-year repayment schedules, sources said.
Saroj Dutta, executive director of Jet Airways, confirmed the airline had approached various banks for a loan reschedule but declined to discuss the details, saying these were confidential agreements.
In addition, three European banks from Germany, France and the UK (affiliated to the European Export Credit Agencies) have extended loans or guarantees of slightly over $700 million for Airbus 330.
These are asset-backed loans in which the aircraft is being used as collateral. In the aviation sector, 85 per cent of a loan for aircraft acquisition is typically financed through the Exim Banks of the respective country.
"After paying overdue liabilities such as those on fuel, the company will still be left with around $200 million of cash that was borrowed from domestic banks in the last six months," sources said.
Jet Airway has a fleet of 87 aircraft, of which it owns 39. The remaining 48 have been taken on "dry-lease" (meaning without crew). Company sources said the monthly lease rental for a Boeing 737 is around $300,000 and for a Boeing 777 roughly $1.2 million (on dry lease).
To overcome the current crisis, the firm is opting for a sale-and-leaseback strategy. "The difference between the current book value and market value of these aircraft would be around $500 million. As a strategy we have been selling and leasing back four or five Boeing 737s every year," said a senior official on condition of anonymity.
The company earned around Rs 428 crore from the sale and lease-back of five aircraft in the nine-month period ending December 2008
The company has informed the stock exchange that will not publish its unaudited quarterly results within 30 days of March 31, 2009. It will, however, publish the audited annual result within three months from the March 31, 2009.