Jet Airways is on the news recently has it faces some severe financial crisis. Jet Airways a popular International Airline company is facing debts and has decided to sell its significant shares for one cent. Financial experts say that it is a bailout plan initiated by the state-owned lenders of Jet Airways so that they would get sufficient time and make necessary arrangements for fresh equity. The general elections are about to take place in a few weeks, and this announcement comes as a great surprise. It is highly sensitive information as one of the top companies of the country is looking for its rescue.
Jet Airways is continuing to be on the top of the several airlines in terms of its performance. Naresh Goyal a ticketing agent who later becomes an entrepreneur The Abu Dhabi’s Etihad holds the smaller portion of the shares of Jet Airways. Etihad Airways are the fastest growing in the world market. Jet airways include specific international destinations including London and Singapore.
Jet Airways is currently facing trouble as the budget carriers have flooded the market in the mid-2000s by initiating no-frills. This made Jet Airways to reduce the fares of both the domestic and International flights. Provincial taxes were imposed on the Jet fuel which increased the fuel prices. This added up to the expenses of Jet Airways. Indian travelers who took Jet Airways for their air travel were not ready to pay the premium amount for food and entertainment on travel. Jet Airways is a full-service airline, and they offer a lot of amenities for its passengers for free. This has increased the financial load for the airline. This in the past decade AirAsia suffered from a debt of nearly 72.99 billion rupees. The company did not reveal its cash and cash equivalents at the end of the year. AirAsia has delayed its payments to its stakeholders.
State Bank Of India has proposed a deal to sustain in this bad financial situation. A group of lenders from the State Bank of India is about to purchase 50.1 percent of the stake for one rupee. This is based on the framework of the Reserve Bank of India. This is a standard procedure followed for companies facing financial issues. It is called a Bank led provisional resolution plan. It is a temporary plan which would help Jet Airways to raise equity from their investors. Airlines is need of 85 billion rupees to bridge its gap. They have planned to get back on its feet through Fresh equity infusion and asset disposals. Thus the deal is to convert the debt into shares to bring down the debt levels of the company. Other companies should invest fresh equity. Etihad and Tata Groups would invest in the Fresh equity shares of Jet Airways.
It is said that various political reasons influence the deal offered to the Jet Airways Company. As the Prime Minister elections are fast approaching the downfall of a popular Airlines company can create a negative impact on the BJP Government. It would increase the airline fares and fuel the criticism of the people on the current government. This made the issue more sensitive, and the Government has asked for help to the Tata groups.
The airline business is facing severe challenges in India as other Airlines are also in severe financial trouble.