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Mon 11 Mar 2019 11:39 AM

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Jet Airways negotiates $300m credit facility

Jet Airways has cancelled numerous flights in the recent weeks, including some operations to Dubai, due to grounding of its aircraft and working capital crunch

Jet Airways negotiates $300m credit facility
Jet Airways has cancelled numerous flights in the recent weeks, including some operations to Dubai, due to grounding of its aircraft.

The cash-strapped Indian airline Jet Airways has managed to successfully negotiate approximately $300 million credit facility from Punjab National Bank (PNB) - a leading member of the carrier’s banking consortium - to meet its working capital requirements.

Jet has been facing serious crunch on its working capital requirements for some time now, seriously affecting its operations and payment defaults to its vendors and aircraft leasing companies, resulting in 28 of its leased planes grounded.

Sources in the banking sector told Arabian Business that the credit facility extended by PNB has two components - $157 million by way of foreign currency term loan and another $136 million by way of non-fund-based credit.

Non-fund-based credit facilities include offering Letters of credit (LCs) and bank guarantees.

Arabian Business has contacted PNB for comment.

A Jet Airways spokesman told Arabian Business that the company does not want to comment on the issue.

The fresh credit facility from PNB is reportedly linked to tight conditions, including Jet Airways creating a trust and retention account (TRA) by entering into a tri-partite agreement with PNB and ICICI Merchant Services Pvt Ltd.

The TRA mechanism envisages full control of future cash follows to the TRA agent, who, in turn, can make all payments to lenders without the intervention by the borrower, thus protecting lenders against manipulation of cash flows by the borrower.

Taking control

“The TRA mechanism effectively means that the lenders taking over full control of working capital account of Jet Airways and to that extent is a transparent and well-conceived system to protect the repayment commitment to lenders, besides ensuring better utilisation of cash flows,” M R Rajaram, a leading financial consultant and former finance director of an MNC, told Arabian Business.

Sources said the decision of PNB to extend fresh credit facility to Jet Airways seemed to show the backing of all the consortium lenders to the carrier, as the TRA mechanism will ensure not only servicing of the fresh loans from PNB but servicing of existing loans of all its lenders from the future cash flows.

“Generally the first right on cash flows are with the existing lenders of a company and they will not transfer this right to a new lender if their interests are not protected,” Rajaram said.

The banking consortium to Jet seemed to have agreed upon an arrangement on extending fresh loans to Jet on a proportionate basis, based on their current exposure to the airline, he added.

SBI, which is the leader of the banking consortium, has about $286 million loan exposure to Jet Airways.

Jet is also understood to have raised $36 million loan from SBI against the carrier’s fixed deposit of $215 million. The fresh loan, raised for meeting its working capital requirement, was outside the additional loan component in the bank-led restructuring proposal for Jet Airways.

Sources close to the airline said the carrier could use part of the non-fund-based credit facility from PNB to settle rental dues to some of its leasing companies and thus get few of its grounded aircrafts back in operation.

Jet has cancelled numerous flights in the recent weeks, including its operations to Dubai, due to grounding of its aircraft.

As much as 40% of Jet’s 123 aircrafts are said to be grounded now due to payment issues with its leasing companies and maintenance issues.

Meanwhile, the board meeting of Etihad Airways, Jet’s 24 percent partner, slated today, is expected to take a decision on the bank-led restructuring proposal on the Indian carrier.

Jet promoter Naresh Goyal and Etihad are to bring in additional equity to the airline as part of the restructuring proposal.

SBI Chairman Rajnish Kumar has said on Saturday the comprehensive resolution plan to bail out Jet Airways will be implemented if all conditions by all stakeholders are met.

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