Jet Airways creditors can only recover 5% of amounts owed

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The lenders of Jet Airways India Ltd. will only receive about 5% of what is owed to them, another blow to the country’s banks which are increasingly accustomed to paltry recoveries.

The new owners of Jet Airways – Dubai-based businessman Murari Lal Jalan and Kalrock Capital Management Ltd. in London – have offered to pay 3.8 billion rupees ($ 51 million) of the 78.1 billion rupees they owe financial creditors, according to a bankruptcy court order filed Wednesday night.

Some 1.9 billion rupees will be prepaid within six months while the remainder will come from the proceeds of the zero coupon bond issue. The new owners also offered the lenders a 9.5% stake in Jet Airways and a 7.5% stake in Jet Privilege, the carrier’s loyalty and rewards management company.

India has one of the worst bad debt ratios in the world, and falling creditors collection rates are not giving the country’s financial system any respite. Collections for financiers of resolved insolvency cases fell to 39% of dues in March, from 46% a year earlier, according to data from Macquarie Capital. If we exclude the top nine cases by collection, the lenders received only 24% of the contributions.

Jet Airways was India’s largest private carrier before going bankrupt in 2019 due to growing debts. Even before Covid-19 destroyed demand for air travel, overwhelming price wars and high costs made it difficult for many airlines in India to survive. Kingfisher Airlines Ltd., once the country’s second largest national carrier, collapsed in 2012, and the national airline Air India Ltd. is in debt and has been looking for a buyer for years.

Even though Jet Airways is set to fly again now that its bailout has been approved, many challenges await the carrier on the ground. Jet Airways planned to operate all of its historic national slots, which were intended for other airlines during the time it was not flying, but the bankruptcy court did not agree to restore them.

“The allocation of slots and their use is like an ever-changing puzzle,” the order said. “So a single slot could not be left or kept idle. In addition, other airlines have used those slots for all these years. Depriving them of the slots they still use / operate would be detrimental” given that Jet Airways has not yet resumed operations and “has a proven track record in operating an airline”.

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