A Boeing Co. 737 max aircraft performs a flying display on the second day of the Farnborough International Airshow 2016 in Farnborough, U.K., on Tuesday, July 12, 2016. (Bloomberg)

Jet Airways India Ltd., one of the country’s biggest carriers, is on life support. A bailout plan proposed by its lenders is making slow progress, two-thirds of its fleet is grounded, staff salaries are delayed and it’s missed payments to banks and leasing companies. The clock is ticking for one of the country’s most visible companies at a sensitive time, with India’s general election just weeks away. Now, the chairman of the debt-ravaged airline has resigned.

1. What is Jet Airways?

Consistently one of India’s top three airlines over the past decade, Jet Airways was founded by ticketing agent-turned-entrepreneur Naresh Goyal -- who resigned as chairman on Monday -- after India ended a state monopoly on aviation in the early 1990s. It’s part-owned by Abu Dhabi’s Etihad Airways PJSC and controls 11.4 percent of India’s market, one of the world’s fastest-growing. Jet Airways also flies to international destinations including London and Singapore.

2. Why is it in trouble?

As a slew of budget carriers started flooding the market in the mid 2000s, offering no-frills yet on-time flights, Jet Airways began dropping fares, some to below cost. On top of that, provincial taxes of as much as 30 percent on jet fuel added to its expenses, while price-conscious Indian travelers refused to pay a premium for on-board meals and entertainment. Unlike budget operators, full-service airlines such as Jet Airways offer such amenities mostly for free.

3. How bad are Jet’s finances?

The airline has made losses in nine of the past 11 years. It has about 73 billion rupees ($1 billion) of net debt and, according to Bloomberg calculations, had approximately 3.55 billion rupees of cash at the end of last year. It has defaulted on loans that were due by Dec. 31 and delayed payments both to staff and lessors.

4. What is the lenders’ plan?

Led by State Bank of India, banks are taking a 50.1 percent stake at an effective cost of 1 rupee through the issuance of 114 million new shares. It’s a maneuver that’s allowed under a framework outlined by the Reserve Bank of India last year for companies with a negative net worth, called bank-led provisional resolution plan, or BLPRP. Crucially, the structure is supposed to be temporary, allowing time for the airline to raise equity. Jet Airways requires an estimated 85 billion rupees to get back on its feet, so it needs to restructure debt and sell assets, for example offloading aircraft and leasing them back, as well as raise equity. While the bank deal is nominally a conversion of debt into shares, debt will fall by only 1 rupee once the exercise is completed.

5. Who will invest fresh equity?

That’s the key question. Management has given scant details, other than saying that the company’s lenders will participate. Jet Airways has held talks with Etihad and Indian conglomerate Tata Group for new funds, while local media has mentioned the state-run National Investment and Infrastructure Fund as another potential investor. State Bank of India said lenders aim to bring in new investors by May 31. For now, they will provide immediate funding of 15 billion rupees in debt.

6. Why did the founder resign?

As founder-chairman, Goyal has dominated the carrier’s management. Potential investors including Etihad and the Tata Group had demanded he step down, people familiar with the discussions have said. That would allow them a free hand in resuscitating the airline, which has had seven CEOs in just four years. Goyal’s stake halved to 25.5 percent after lenders took control of the company.

7. Why is it important to rescue a private company?

Prime Minister Narendra Modi faces an election starting in April, and the collapse of an airline -- with 23,000 jobs at stake -- would put a dent in his business-friendly image and fuel criticism that he’s failed to deliver on promises about jobs. Mumbai-based Jet Airways’ disappearance would also likely push up airfares -- it flies to 37 destinations across the country. The sensitivity of the matter was highlighted last year when Modi’s government reached out to the Tata Group seeking help.

8. What’s at stake for Etihad?

A lot. The struggling Abu Dhabi-based giant has scrapped routes and cut thousands of positions, putting the brakes on a costly expansion after almost $4.8 billion in losses in three years. It just slashed orders worth $21.4 billion for Boeing Co. and Airbus SE jetliners after a strategy of buying into sick airlines around the world backfired. A healthy Jet Airways would feed traffic to Etihad’s base in Abu Dhabi, flying west-bound Indians to the U.S. and Europe.

9. How are Jet Airways’ competitors doing?

The airline business in India is notoriously difficult, with cutthroat competition pushing base fares to as low as 2 cents. Kingfisher Airlines, founded by beer tycoon Vijay Mallya, ended operations in 2012 after failing to clear its dues to banks, staff, lessors and airports. SpiceJet Ltd. almost collapsed two years later before its founders returned to gain control and revive the company. State-run Air India Ltd. is surviving on bailouts worth billions of dollars. Apart from Etihad, Singapore Airlines Ltd. and AirAsia Bhd. have also set up local ventures, but they are loss-making. There’s one exception: IndiGo, operated by InterGlobe Aviation Ltd., has managed to consistently make money with a tight lid on costs and lucrative maintenance and engineering contracts negotiated as part of large aircraft orders.

--With assistance from Saloni Shukla and P R Sanjai.

To contact the reporter on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Grant Clark, Candice Zachariahs

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