Jet Airways, after failing to find a buyer for itself now has lenders who have decided to start insolvency proceedings against the grounded airline. SBI had received only a conditional bid, which was upto the lenders to arrange for regulatory exemption on an open offer.
Another reason why the lenders decided to go for insolvency proceedings is that Etihad expects banks to write off most of their loans to Jet. While a write-off is inevitable given that assets are inadequate, lenders worry that a haircut larger than the liquidation value might be seen as favouring a business.
The regulations for insolvency resolution process for corporates define liquidation value as the amount that is realisable by selling all the assets on the commencement date of the insolvency process. SBI, the leader of the consortium of banks, had arranged a meeting of all lenders in Mumbai on Monday to decide the way forward on Jet Airways.
“After due deliberation, lenders have decided to seek resolution under the Insolvency and Bankruptcy Code (IBC) as only a conditional bid was received and the requirement of the investor for SEBI exemptions and resolution of all creditors is possible under IBC,” SBI said.
NCLT will, in any case, hear on June 20 a bankruptcy plea application against Jet Airways by operational creditors Shaman Wheels and Gaggar Enterprises. SBI has repeatedly said that insolvency is not a preferred option but only a last resort as, in the airline business, recoverability is difficult from a bankrupt organisation.
If the insolvency petition is admitted, the NCLT will appoint a resolution professional who will perform the role of the chief executive while a committee of creditors will take on the role of the board of directors. According to bankers, a reference to insolvency will reduce chances of the airline’s revival as lessors will take away all their assets. These include planes that were leased to Jet.
Lenders and employees will have the top claim on Jet’s assets, which include 16 aircraft that are owned by the airline. However, multinational banks, including US Exim, have a claim on these aircraft against their advances.