Jet sells loyalty miles in advance to raise ~2.5 bn

Fundraising will help firm pay salary , settle vendor dues

Jet Airways has tapped its loyalty programme to overcome the tight liquidity situation it is in.

The cash-strapped airline has raised more than ~2.5 billion from advance sale of redemption miles to its subsidiary. The loyalty programme is run by Jet Privilege Private Limited (JPPL), a company it co-owns with Etihad Airways. Accrual and redemption of miles is a transaction between two companies. While Jet Airways pays JPPL for accrual of miles, it gets paid by JPPL on redemption of those miles by a customer.

The redemption cost is agreed on per-mile basis and accounts are settled every month. With this transaction, JPPL has paid in advance for the entire year, a source said.

“This is like a forward sale of tickets and is legitimate. JPPL would have secured a discount on redemption payment for making the advance purchase,” said an aviation source. In the past, too, Jet Airways has sold redemption miles in advance to banks to tide over its financial crisis.

The fundraising will help the company make salary payments and settle vendor dues. A report by newsire ANI said the fund raising plan was proposed by Jet’s strategic partner Etihad Airways.

“The plan includes a $35 million (more than ~2.5 billion) cash pre-purchase payment to Jet Airways by Jet Privilege, which is majority owned by Etihad Airways,” the airline said in a statement.

Jet Airways said JPPL concluded pre-paid ticket purchase agreement under normal course of business. “JPPL regularly purchases these tickets to offer its members against redemption miles and, hence, the said transaction is no different,” the airline said. Jet Airways, which has announced ~20 billion costsaving initiative, is also looking to raise funds through a stake sale in JPPL.

Private equity firms, Blackstone and TPG, are in discussions to acquire a stake in the JPPL. Etihad acquired 50.1 per cent in JPPL in 2013, while the remainder is held by Jet Airways.