DELHI – The Indian government has asked state-run banks to rescue privately held Jet Airways without pushing it into bankruptcy, Reuters report.
Just weeks before a general election in the Asian economy, New Delhi has urged state-run banks to convert debt into equity and take a stake in Jet in a rare move in India to use taxpayer money to save a struggling private-sector company from bankruptcy.
A source that remain unnamed, however, said this would be “transitory” and lenders could sell the stakes once Jet revives.
The government has also nudged its 49 percent-owned National Investment and Infrastructure Fund (NIIF) – created to invest in stalled and new infrastructure projects – to buy a stake in Jet, a separate government source said.
Saddled with more than 1 billion dollars of debt, Jet is struggling to stay aloft. It has delayed payments to banks, suppliers, employees and aircraft lessors – some of which have begun terminating lease deals.
The world’s biggest democracy is gearing up for an election next month and its booming aviation sector, which employs close to a million people, has been one of the job-creation success stories that Modi can point to as he seeks a second term.
Why Jet must survive the turbulence
It is crucial for India that Jet revives as the fall of its second-largest airline could have “disastrous consequences for the investment climate” in the sector, a top government official told Reuters.
The official is concerned that if Jet collapses it could drive up airfare in a fast-growing market, wiping out efforts to bring low-cost air travel to India’s hinterland.
If India’s plan for Jet succeeds, then state-run banks including SBI and Punjab National Bank as well as NIIF would together own at least a third of the airline until they find a new buyer.