Govt asked banks to ‘save Jet, avoid bankruptcy’

India’s government has asked staterun banks to rescue privately held Jet Airways without pushing it into bankruptcy, as Prime Minister Narendra Modi seeks to avert thousands of job losses weeks before a general election, two people within the administration said.

The finance ministry has in the past year sought regular updates from the banks, led by State Bank of India (SBI), on Jet’s financial health, the people said. In recent months, the banks have provided weekly updates about a revival plan and also sought government advice, the people added.

“Top officials at the finance ministry seek regular updates on the issue,” said an official at one of Jet’s lenders, who did not want to be identified as discussions are private.

Details of the discussion between the finance ministry and bankers on bailing out Jet have not been previously reported.

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. The two people plus one more source, 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 alot. It has delayed payments to banks, suppliers, employees and aircrat 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. 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 said.

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.

A chaotic end could also make it more difficult for the government to sell a stake in Air India, at least in the short run. Last year, it failed to sell part of its stake in the indebted carrier which currently relies on taxpayer money.