Doubts lenders of Jet Airways have about Kalrock consortium’s revival plans

The implementation of resolution plan for Jet Airways was being delayed by the Monitoring Committee, which comprises lenders and the resolution professional.

As per the terms of the Rs 450-crore resolution plan, the successful resolution applicant — the consortium of Murari Lal Jalan and Kalrock Capital — was to infuse funds into the Jet Airways within 170 days and take control of the airlines within the first 180 days from the Effective Date, which is the date on which the successful resolution applicant has fulfilled five conditions.

And while the consortium of Murari Lal Jalan and Kalrock Capital claimed that it has fulfilled the five conditions by 20 May 2022 and that the same date should be treated as effective date for making payments and taking control of the management, the Monitoring Committee was not convinced that the consortium had fulfilled all the criteria.

Objection by the Monitoring Committee

So, what were the doubts in the mind of the Monitoring Committee?

The Monitoring Committee claimed that the successful resolution applicant did not fulfil the five conditions precedent prior to or before the expiry of the stipulated period of 270 days from the approval date of the resolution plan.

The Monitoring Committee further alleged that the consortium was continuously and on several occasions misleading the NCLT and the NCLAT with submissions on fulfilment of the conditions (despite being fully aware of the Monitoring Committee’s disapproval), and on that false premise, attempted to wrongly obtain control and management of Jet Airways.

The Monitoring committee has emphasised that these incomplete conditions are critical for and have a bearing not only on the successful recommencement of Jet Airways as an aviation business, but also for its continued operations, and payment of committed considerations due to the financial creditors as per the resolution plan.

5 condition precedents & Monitoring Committee’s objection

The five conditions precedent were: i. Validation of Air Operator Certificate of Jet Airways by the Directorate General of Civil Aviation (DGCA) and Ministry of Civil Aviation (MoCA); ii) Submission of the business plan to DGCA & MoCA; iii) slots allotment approval; iv) International Traffic Rights clearance in compliance with applicable law; v) approval of demerger of ground handling business into Airjet Ground Services Ltd (AGSL).

The Monitoring Committee was particularly not happy with the successful resolution applicant’s claim of fulfilling the three conditions — slot allotment approval, international traffic rights clearance and submission and approval of business plan by DGCA and MoCA.

While Jet Airways has got the slots in Kochi, Bengaluru, Nagpur and Hyderabad, allotment of slots in Delhi and Mumbai was subject to payment of pending dues. While the NCLT had relaxed the requirement for reinstatement of all slots to Jet Airways on a historical basis, the Monitoring Committee argued that Delhi and Mumbai flight operations were key to achieving the revenue and cash flow projections as per the resolution plan.

It argued that based on these pre-determined routes of operations/flying schedules and slots, the consortium had also laid down an extensive revenue and cash-flow projection for airlines for 5 Years (that intersect with the maturity and redemption periods of the debt instruments redeemable/payable by the airline in 5 years.

According to the Monitoring Committee, the 5-year cash flow forecast envisaged a total revenue of Rs 1,263 crore out of which a majority share of revenues of amount Rs 1,172 crore were forecast and assumed to come from passenger revenues. These passenger revenues, on an average, therefore, constituted 92% of the total revenues per year estimated for Jet Airways as per the revenue projections and cash flow forecast from networks/slots identified for first year on Delhi and Mumbai routes.

It further argues that the techno-economic feasibility and viability of the resolution plan depended on the commercial and business projections, and in turn the estimated cash flow and revenue generations from operations from Delhi and Mumbai for the next 5 years. It says further says that Jet Airways’ capacity to pay against issuances of debt instruments 5 years depended on the two routes.

On the issue of international traffic rights clearance, the successful resolution applicant had argued that International Traffic Rights Clearance can only be granted as per the National Civil Aviation Policy, 2016, which requires deployment of 20 aircraft or 20% of total capacity (in terms of average number of seats on all departure put together), whichever is higher. It further argues that the resolution plan initially proposes to start domestic operations with six narrow-body aircraft, and therefore, for the purpose of achieving the Effective Date, the International Traffic Rights Clearance is not relevant and the same will be obtained by Jet Airways after it recommences in operations as a condition subsequent in compliance with the applicable laws.

But the Monitoring committee argued that the failure to obtain international traffic rights clearance by the Consortium of Murari Lal Jalan and Kalrock Capital interferes with the business and cash flow projections as presented by it in its Resolution Plan.

“The revenue assumptions projected by the successful resolution applicant under the business plan as part of the resolution plan were stated to be contingent upon the generation of revenue from the international flights being 55% in Year 1 (adjusted) with subsequent increase to 70% and 82% in Year 2 and 3. The total revenue proposed to be generated in as per business pan will not be achieved as projected on account of nonavailability of international traffic license,” argues the Monitoring Committee.

The Monitoring Committee argued: The treatment and pay-outs of Financial Creditors as per the Resolution Plan is critically dependent on the successful revival of the operations of Jet Airways, which in absence of the fulfilment of the conditions as projected under the resolution plan, is rendered extremely doubtful.

Also read: A deep dive into the resolution plan of Jet Airways