Etihad reports losses, Jet Airways bailout delayed

While Jet Airways is in dire need for funds, its 24% stakeholder Etihad continues to battle its own financial problems, revealing over a billion in loss in third consecutive year.

Fruitless meeting leaves Jet Airways still without rescue plan

After a meeting of its board members on March 12, 2019, Etihad failed to agree to a provisional debt rescue plan proposed by Jet Airways lenders.

The conditions offered by the lenders included an addition of “two nominee directors from the promoter group of Jet Airways, led by Naresh Goyal”, two people directly aware of the development told Mint. The second point of contention came when Goyal, founder Chairman of Jet Airways, who as a promoter is also in charge of raising investment funds, demanded removal of the perpetuity clause that caps his shareholding to 22%.

Several members of Etihad board, that has a 24% stake in the Indian airline, expressed reservations about the terms proposed by Jet Airways’ lenders.

The rescue plan was expected to inject from $231.67 million to $275.10 from a new investor into the airline, as Jet Airways is in dire need for funds. $150 million would come from the lenders, led by the State Bank of India who would raise its stake to 29.5%. Etihad would also bring in from $231.67 million to $275.10, and raise its shareholder to 24.9%.

Half of Jet Airways fleet is currently grounded by lessors due to non-payment of lease rentals. Salaries of several pilots were unpaid, as well as interest payments on its debt.

Etihad’s finance still negative

However, the situation at Etihad might not be ideal for a bailout. The Abu Dhabi-based suffered a net loss in 2018 for the third year in a row, as announced in its financial report, published on March 14, 2019. Those losses have been attributed to the risky investments into foreign airlines.

The company said it reduced its loss in 2018 to $1.28 billion against $1.52 billion a year earlier. Its operational performance improved by 15% against the 7% that were forecasted, with a turnover of $5.86 billion for the year.

Etihad has accumulated losses of $4.67 billion over the last three years, forcing it to give up some aircraft orders.

40 Airbus A350-900s and 2 A350-1000s previously ordered by Etihad Airways were removed from the European manufacturer order log in March 2019, keeping only 20 Airbus A350-1000s and an upcoming contract for 30 A350-900s. As announced in June 2018, Etihad Airways should cancel all or part of its Boeing 777X order.

Etihad has been undergoing a five-year restructuring process since late 2017 to try to limit its losses. On June 3, 2018, the airline announced it would restructure its operating model. The aviation group was divided in seven business branches under the supervision of CEO Tony Douglas. At the time, Peter Baumgartner who was leading the airline since 2016 stepped down to serve as Senior Strategic Advisor.

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