JET AIRWAYS COURT CASE LOOMS BUT UNTIL THEN SELLING ALL NON ESSENTIALS AND REDUCING DEBT IS THE ORDER OF THE DAY

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By TESTCustomwebLP TESTCustomwebLP November 2, 2010 10:03

JET AIRWAYS COURT CASE LOOMS BUT UNTIL THEN SELLING ALL NON ESSENTIALS AND REDUCING DEBT IS THE ORDER OF THE DAY

Jet Airways, India’s largest carrier by passengers, will cut debt by turning rupee loans into dollar-denominated loans. It will also raise money through the development of land it owns, and in a now highly familiar move the airline will sell at least 20 737s and lease them back.

The plan is aimed at reducing Jet’s massive Rs.13,737 crore debt burden. Jet says it will save $15 million annually by converting rupee loans into dollar loans. The airline will have only Rs.500-800 crore as high-cost loans while working capital loans are still carrying 12% interest rates. Jet’s liability on aircraft-related loans is Rs.900 crore a year.

Out of the total high-cost debt of Rs.3,500 crore, Jet has converted Rs.1,600 crore rupee loan with an average interest rate of 12.25% into US dollar loans with average interest rates at 6.8%. Jet is due to convert another Rs.500 crore (of) rupee loans within the next few months.

On the property side Jet will receive upfront payments of Rs.500-550 crore from Godrej Properties, which will develop the airline’s 1.47-acre plot in Bandra-Kurla Complex, a business district in suburban Mumbai. The airline had won rights to develop the space in a 2008 auction by the Mumbai Metropolitan Region Development Authority, the apex body for planning and coordination of development activities in Mumbai. Jet Airways will get 250,000 sq. ft of free space, which the carrier can either occupy or lease out, as part of the deal with Godrej Properties.

You may recall that Jet has spent the past two years trying to raise $400 million (around Rs.1,780 crore) by selling fresh shares to institutional investors which in turn would lower its debt. Indian government approvals and the banking crisis ensured that this process was a failure.

Jet management have obviously walked out of the boardroom, looked around and thought, right, what can we sell? Indeed this sale of assets does have similarities with what JAL was doing a number of years ago when it sold off just about everything it could. However, Jet has a further problem. The airline will need to approach the Indian high court for approval before selling and leasing back the 737s due to the Sahara problem. Jet Airways bought Sahara Airlines, which operated Air Sahara, in April 2007, and later rebranded it JetLite, but on 26 March 2010 Sahara India filed an application with the Bombay high court to seize Jet assets claiming Jet Airways had defaulted on payments towards the purchase of Air Sahara. The next hearing in the case is on 17 November, we will know then if Jet has a problem or not…

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By TESTCustomwebLP TESTCustomwebLP November 2, 2010 10:03
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