India's private airlines Jet Airways has been grounded after having ben in operation for close to 26 years.
This happened after the airlines request for more monies from the banks - which it already owns more than Rs.8000 crores- was declined. The airlines thus ran out of cash and had to shut down its operations.
Jet airways stock plummeted by more than 30% in a day.
A brief look at thr airlines financials and one will be able to understand that this problem has been going on for some time. The reserves of Jet Airways had turned negative since March 2012
This reiterates that a business with worsening financials will face a fall in stock price.
WHAT NEXT FOR JET AIRWAYS ?
This happened after the airlines request for more monies from the banks - which it already owns more than Rs.8000 crores- was declined. The airlines thus ran out of cash and had to shut down its operations.
Jet airways stock plummeted by more than 30% in a day.
JET AIRWAYS STOCK ON 18TH APRIL 2019
(SOURCE : NATIONAL STOCK EXCHANGE of INDIA)
A brief look at thr airlines financials and one will be able to understand that this problem has been going on for some time. The reserves of Jet Airways had turned negative since March 2012
BALANCE SHEET OF JET AIRWAYS MARCH 2007 TO MARCH 2018
(NEGATIVE RESERVES SINCE MARCH 2012 ONWARDS)
(SOURCE: WWW.SCREENER.IN)
This reiterates that a business with worsening financials will face a fall in stock price.
WHAT NEXT FOR JET AIRWAYS ?
- Jet Airways most valuable assets are its slots that it has airports around the world and its bilateral rights. These are going to remain for 90 days. Beyond that they will go and there will be no use for anyone to buy the airline.
- Potential investors will need time to go over the books of Jet Airways and complete the due diligence process. Does the airline have time for this?
- The creditors (or lenders) have decided not to go through the Insolvency and Bankruptcy Code (IBC) route to recover their dues. This is because IBC is a time taking process and will end up hurting the valuation of the airline. This will mean that the lenders will be able to recover less monies.
- The lenders led by SBI (State Bank of India) have stepped up efforts to engage with Etihad Airways - Jet's second largest shareholder that wants an exemption from a capital markets rule to consider re-investing in it - on an urgent resolution path for the airline.
- As on date the lenders can only offer 32% of the airlines shares that are pledged with them by founder Naresh Goyal. Goyal stepped down from the Chairmanship of the airline on March 25th 2019 and then lenders agreed with a board approval from Jet to convert loans into equity giving them about 51% stake in the airline. But this was thrown into doubt last week when the Supreme Court set aside RBIs circular on February 12, 2018, under which the Jet Loan restructuring was arrived at.
Time is running out for one of India's oldest and one of the largest private airline. It is a tough road ahead.
(DISCLAIMER: FOR INFORMATION PURPOSES ONLY. )
