Synergy open to pick majority in Jet Airways if lenders agree to convert debt into equity

FILE PHOTO: Jet Airways aircraft are seen parked at the Chhatrapati Shivaji Maharaj International Airport in Mumbai, India, April 18, 2019. REUTERS/Francis Mascarenhas/File Photo

Synergy Group Corp., one of the three potential investors for Jet Airways (India) Ltd, is willing to take a majority stake in the grounded airline if lenders agree to take a deep haircut and convert their debt into equity, a representative of the South American company said.

“We are consulting lawyers and exploring (whether) Synergy Aerospace as a financial investor can take a majority stake in Jet Airways,” Antonio Guizzetti, president of Washington-based Guizzetti & Associates, legal adviser to Synergy Group on the Jet Airways acquisition, said in a phone interview. Synergy Aerospace wants to take a 51% stake in the airline, he added.

Synergy runs several airlines in South America, including Colombian carrier Avianca Holdings, the region’s second-largest airline.

A plan to take a majority stake may, however, hit a regulatory hurdle, as foreign airlines are allowed to buy a maximum of 49% in a local airline.

Although financial investors can own more than that, the control of the airline has to rest with Indian investors. This may change if the government decides to ease restrictions on foreign direct investment as proposed in the budget.

In India, “the group will look to partner banks and maybe an Indian industrial group”, Guizzetti said, adding the Synergy Group has not had discussions with potential partners in India so far.

A lawyer who specializes in aviation deals said that “a foreign non-airline can only nominate less than half the board members”. “It will be difficult for Synergy Group to have a controlling stake in Jet Airways,” said the lawyer, requesting anonymity.

German Efromovich, founder and chief executive of Synergy Group, will travel to India on 15 September to discuss his bid with the lenders of Jet Airways.

“We don’t know yet how much Synergy Group will be investing in Jet Airways as it will depend on how open and available the banks will be to a haircut and conversion of their debt into equity,” Guizzetti said, adding that the lenders will have to take a significant haircut for the venture to be successful.

Jet Airways suspended operations in April owing to a severe cash crunch.

A consortium of 26 banks led by the State Bank of India has approached the National Company Law Tribunal to recover dues of more than ₹8,500 crore.

The airline has had negative net worth for long and has run a loss of more than ₹13,000 crore in the past few years. Its total liabilities amount to more than ₹15,000 crore.

Lenders of Jet Airways have been trying to sell the beleaguered airline as a going concern for the past five months.

While the lenders had received expressions of interest (EoIs) from Panama-based Avantulo Group and Russian fund Treasury RA Creator just before the earlier deadline of 10 August, Synergy Group submitted its EoI just after the deadline. The deadline for EoIs was further extended to 31 August to attract bidders. However, there was no fresh interest in the airline.

Guizzetti said that if Synergy Group is allowed to invest in Jet Airways, it will capitalize the new company and make further equity infusion.

“In this case, part of the equity infusion from Synergy will go to pay part of the debt, which will have to be discounted (by banks) and refinanced. The cash flow of new company for the next 12 months will be negative as we will need to order planes, hire new staff, negotiate with regulators and government on the return of (domestic) slots, and also negotiate with international airports for slots,” Guizzetti said.

“The airline (Jet Airways) would need a substantial working capital at the beginning, which will be invested by Synergy,” he said, without elaborating.

Access to prime slots at major airports, a stake in a profitable frequent flyer programme and a few relatively old planes appear to be the only assets before a potential bidder.

This article was first published on livemint.com