Jet Airways: Lessor repossessions gain speed as airline winds down operations

Lessors exposed to Jet Airways have deregistered 27 aircraft and filed requests for a further 20 in a race to regain control of their assets as questions mount over whether the airline can sustain operations.

The airline said late on 16^th April that in view of its “critical liquidity position” its operations “have been severely impacted.” The statement, submitted to the Bombay Stock Exchange, came in response to a report by Indian television channel CNBC TV18 claiming that Jet was to “temporally shut down its operations." As Ishka goes to press, all of Jet’s aircraft bar two ATRs are on the ground.

Lessors have sought to deregister aircraft, but one aviation lawyer has warned Ishka that customs paperwork could severely delay how quickly lessors can gain full control of their aircraft.

According to Nitin Sarin, managing partner at aviation law firm Sarin & Co in Chandigarh, lessors could face significant delays if Indian Customs and the Reserve Bank of India fail to offer them the necessary approvals.

 

Stalled talks

 

Talks between banks and investors to rescue the cash-strapped carrier, until last year India’s second-largest by market share, have stagnated in recent weeks. Minority-owner Etihad reportedly threatened to leave the negotiating table last month (see Ishka’s earlier Insight) while this week state banks, until now poised to make the biggest contribution to the airline, have yet to agree on an emergency fund disbursement. According to India’s National Aviator’s Guild, more than 1,000 pilots have not been paid for three months.

If it was to go bankrupt, Jet Airways would be the largest airline by fleet size to become insolvent since Air Berlin. Ishka understands that Jet began 2019 with a fleet of 118 aircraft in operation of which 104 remain in India, including the ones deregistered or awaiting deregistration. That figure could stay the same for months due to lengthy processing times for export permits.

 

The rush to repossess

 

Dublin-based Avolon became on 5^th April the first lessor exposed to Jet Airways to enforce IDERAs, an irrevocable deregistration measure that prevents a debtor from flying an aircraft under any jurisdiction and allows the applicant to reclaim their aircraft. Since then, nine lessors have succeeded in deregistering their aircraft and seven others have filed IDERA requests – Aircastle and Carlyle Aviation Partners being the latest ones on 16^th April.

Aergo Capital, which last week filed IDERAs to deregister seven ATR72-500s, have since withdrawn the requests.

 

Click here to download the data behind the chart.

Source: CAPA Fleets and Ishka research

Click here to download the data behind the chart.

 

Click here to download the data behind the chart.

Source: CAPA Fleets and Ishka research

Click here to download the data behind the chart.

 

Repossession paper jam

 

Thirteen leased aircraft left Jet Airways before repossessions began. According to Sarin, the return of those 13 aircraft (see table below) to their respective lessors was agreed with the carrier. “The airline essentially gave all the lessors an option for early termination of the leases,” Sarin tells Ishka.

 

Click here to download the data behind the chart.

Source: CAPA Fleets and Ishka research

Click here to download the data behind the chart.

 

However, after the departure of Naresh Goyal from the airline’s board Jet Airways’ management changed direction. “The new board of Jet said ‘sorry, that’s no longer optionable and we want to continue flying the aircraft’,” Sarin explains. What followed is the ongoing wave of repossessions.

But taking deregistered aircraft out of India may prove to be a complicated task. Sarin, whose firm carried out the first repossession of a helicopter in India under Cape Town-compliant deregistration rules, said the entire process took around five months.

“The deregistration [of the helicopter] happened very quickly, but we however faced many issues with customs and the Reserve Bank of India getting the necessary export approvals from them,” Sarin says, adding that India’s customs and “other authorities” are not yet aligned with Cape Town. The Indian Parliament is yet to formalise a Cape Town Convention implementation bill to address this (see Ishka’s earlier Insight).

“It is anybody’s guess if these [Jet Airways] aircraft will face the same pushback from customs and the RBI,” Sarin remarked.

 

The Ishka View

 

Lessors appear to have lost confidence in Jet Airways’ ability to recover and have been busy preparing to repossess their aircraft. However, this may not be a quick process, as the sluggish export of a recent repossessed helicopter shows. A lot depends on the speed and willingness of Indian Customs and the Reserve Bank of India’s to offer lessor the necessary approvals. If efforts to rescue the airline succeed, and lessors repossessing aircraft do experience delays they may be incentivised to retrace their steps. Rather than face a lengthy repossession and remarketing process, they could opt to lease their assets back again to Jet.

When low-cost Indian carrier SpiceJet came near bankruptcy in early 2015, some lessors seeking relief in court over DGCA deregistration delays ultimately reached agreements with the airline to continue leasing those aircraft. While the DGCA is no longer an issue for lessors, as the speedy deregistrations under new rules show, export delays could push lessors towards Jet if the carrier recovers.

But Jet Airways will face a difficult road to recovery. Its current business model appears unsustainable in the current fare environment (see Ishka’s earlier Insight) and its recent troubles are leaving parts of its business up for grabs. Pilots are reportedly leaving for other airlines, its slots at Heathrow have been passed on to Etihad, rival airlines SpiceJet and IndiGo are reportedly looking to take slots in Delhi and SpiceJet has been eyeing Jet’s 737 NGs to replace grounded MAXs in its fleet.

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