Trouble mounts for Jet as SBI appoints EY to audit its books

MUMBAI/KOLKATA: State Bank of India has appointed advisory firm EY to conduct a forensic audit of the books of Jet Airways, the financially stretched airline that has sought liquidity assistance from the country’s biggest lender, two people aware of the development told ET.

The investigation would stall fresh SBI loan disbursements to India’s second-biggest airline by market share until the findings of the probe are known. Jet chairman Naresh Goyal has told its lenders, including SBI, about the airline’s strained liquidity condition and sought financial support.

“A forensic audit carries elements that have negative connotations. It is an audit of money trails and is typically ordered when there is suspicion of fund diversion,” a person familiar with the matter said.

An SBI spokesman declined to comment, saying it wasn’t the bank’s policy “to comment upon an individual account and its treatment.” An email sent to Jet remained unanswered.

“SBI has burnt its fingers with Kingfisher Airlines once. It doesn’t want to lend to Jet before it gets some recapitalisation in the form of equity,” said a second person aware of the bank’s move. Kingfisher sank in 2012 with more than ₹8,000 crore of unpaid bank loans and other dues. SBI was the lead banker to the airline.

SBI is also the top local lender to Jet, which has debt of more than ₹8,000 crore on its books.

Jet is being separately investigated by the government on allegations of funds diversion.

“Jet Airways had approached banks for finance in the recent past to tide over the working capital crisis. There was also a regulatory review of its accounts. On a review of the financials, it appears that Jet needs to focus on passenger load factors, achieving better on time performance and optimising revenue per passenger mile. It also needs to identify profitable routes, and focus on the cargo segment for a financial turnaround,” said Arijit Chakraborty, an independent chartered accountant.

“There was also an income-tax survey on Jet but the matter did not escalate further. Bankers, before sanctioning further credit, may carry out a forensic review or a diagnostic exercise as a matter of abundant caution to determine possible funds diversion or financial impropriety,” Chakraborty said.

The cash-strapped airline has delayed salaries, laid off staff, grounded planes and trimmed operations. It has been the subject of multiple credit rating downgrades and is now seeking a cash handout, most actively from its partner Etihad Airways, by selling more stake to the Abu Dhabi-based airline. Etihad owns 24% in Jet.

Jet had proposed Etihad infuse more equity into the airline and hold 34% of the expanded equity base. Goyal’s stake would decline to 34% and the two would co-promote the company.