Jet Airways 2.0: A 5% Recovery For Financial Creditors

A welfare trust for employees and a small piece for public shareholders in Jet Airways 2.0.

<div class="paragraphs"><p>A Jet Airways aircraft. (Photographer: Dhiraj Singh/Bloomberg)</p></div>
A Jet Airways aircraft. (Photographer: Dhiraj Singh/Bloomberg)

Public shareholders will get one share each for 100 shares held by them, and will hold 0.21% in Jet Airways (India) Ltd. And against their dues, employees and workmen will own 0.5% in Jet Airways and 75% in Airjet Ground Services Ltd. via a trust.

Financial creditors of Jet Airways, who've approved the resolution plan, will own 9.5% and will get Rs 385 crore against the admitted claim of Rs 7,807 crore. That comes to a 4.9% recovery.

The resolution plan of Dubai-based entrepreneur Murari Lal Jalan and U.K.-based Kalrock Capital Partners was approved by the National Company Law Tribunal on June 22.

The consortium, which will hold 89.79% in Jet Airways, has proposed a cash infusion of Rs 1,375 crore in the carrier. Out of this, Rs 475 crore will be used to pay stakeholders and Rs 900 crore as working capital and capex expenditure.

Jet Airways' Resolution Plan: Who Gets What?

As per the approved resolution plan, assenting financial creditors will get:

  • Rs 185 crore in 180 days.

  • Rs 195 crore through zero-coupon bonds with face value of Rs 1,000. And non-convertible debentures carrying 0.001% interest rate.

  • Rs 40 crore from Jet's cash balance.

  • 9.5% stake in Jet Airways

  • 7.5% stake in Jet Privilege Private Ltd.

  • 100% stake Jet Lite India Ltd.

Employees and workmen will get Rs 52 crore against their claim of Rs 715 crore. As per the resolution plan, employees can form a welfare trust which will have:

  • 0.5% stake in Jet Airways.

  • 76% stake and management, control of demerged entity Airjet Ground Services. Airjet Ground will be a wholly owned subsidiary of Jet.

  • A token sum of Rs 11,000 each to employees and workmen and certain benefits in the form of medical, school fess reimbursement, free tickets, IT assets, etc.

The resolution plan has also proposed a scheme for absorption of employees. All this is conditional on 95% employees and workmen approving the resolution plan within 30 days.

Operational creditors will be given Rs 10 crore in total. Against outstanding tickets, operational creditors can either choose to get cash refund or seek credit for future tickets. Claims relating to lost Jet Privilege Miles will not be entertained.

The Historicity Issue

One of the key questions before the NCLT was whether Jet Airways can reclaim landing slots that have now been allotted to other airlines.

A landing slot is a permission given to a particular airline to use the full range of airport infrastructure necessary for arrival and departure. The government has denied the airline any historical right over the slots allotted to it before it went into insolvency. Jet Airways' slots were allocated to other airlines.

The NCLT has agreed with the Ministry of Civil Aviation's stance.

In its order, the tribunal has pointed out that Jet Airways ceased operations prior to initiation of insolvency. And so, the legal protection under insolvency law that disallows cancelation of existing government licensees, concessions, etc will not be applicable to it.

The resolution applicant's reliance on the NCLAT's ruling in Aircel's case was also dismissed by the tribunal. In Aircel's case, the appellate tribunal had held right to use spectrum as a tangible asset belonging to the telecom operator.

"In the case of Aircel the spectrum continued to be with the telecom company during the CIRP. In the instant case the slots cannot be regarded as ‘present economic resource’ of the corporate debtor [Jet Airways].

Upholding the 'use it or lose it' principle in the slot allocation guidelines, the tribunal has stated that slots cannot be restored to Jet Airways. It has pointed out that the resolution plan itself envisages a phased utilisation of slots depending on aircraft and attendant wherewithal.

"Despite the temporary allotment of slots to other airlines, their restoration has to be worked out within the parameters prescribed under the guidelines," the tribunal said in its order.

The NCLT has urged the ministry and Directorate General of Civil Aviation to take a holistic approach and provide necessary assistance on slots to Jet Airways.

The resolution plan gives Jalan-Kalrock Capital the right to walk away if the slot negotiation with the DGCA falls through, The tribunal has given it 90 days to negotiate with the civil aviation regulator.