Jet Airways and second-largest shareholder Etihad Airways have been holding rescue talks with bankers of the indebted Indian carrier, three people aware of the matter say.

Executives of the airlines met the State Bank of India officials to discuss Jet’s cash flow and business plan, two of the people said. One said Jet has outstanding dues of about $400m, mainly owed to lessors and vendors.

Abu Dhabi-based Etihad is also considering raising its stake above the 24%  it has held since 2013, said one of the people, who declined to be identified as the talks were private. Foreigners can own up to 49%  of an Indian carrier.

The news sent Jet’s stock up as much as 3%  in early trade before closing down 5.5%. 

Etihad declined to comment. Jet and the State Bank of India did not respond to requests for comment.

Jet, controlled by founder Naresh Goyal, is India’s biggest full-service carrier by market share, serving one of the world’s fastest-growing domestic aviation markets.

Yet the market is dominated by low-cost carriers such as Interglobe Aviation's IndiGo, and is blighted by high fuel prices, a weak rupee and price competition.

More cash from Etihad is not guaranteed considering its own financial state, one of the people said. The airline reported a $1.52bn  annual loss for 2017 due in part to insolvency partnerships Alitalia and Air Berlin.

However, there is also the fear that Jet will struggle to survive without further investment, the person said.

Etihad’s board meets on Friday and could discuss the airline’s Jet investment, one of the people said.

“Should the board decide something, it has to go to the executive council of Abu Dhabi for approval and that would take some time,” the person said.

Discussions between the two airlines and India’s biggest state-run bank focused on operational cash flow, said one of the people. The executives want clarity on how much more debt Jet can take on, and the bankers want to know how much equity the airlines can provide, the person said.

Jet, whose debt was about 80.52-billion rupees ($1.14bn) as of September 30, is seeking funds at a time of tighter lending standards and a general liquidity crisis in India.

The airlines also presented a business plan detailing Jet’s network and fleet expansion targets over three to five years, as well as revenue and cost projections, one of the people said.

There is an indication that by mid-January the airline could see some money coming in, said the person, without elaborating on the source of funds. At present, Jet does not have the liquidity to honour all payments and expenses but is paying statutory dues such as taxes, the person said.

The airline has delayed salary payments to pilots and top executives and is cutting flights on nonprofitable routes to save money. 

With fewer flights, Jet aims to reduce airport and support staff, the person said. The airline has also deferred delivery of at least two aircraft to January from November-December, the person said.

Some domestic airport operators and fuel suppliers have put Jet on cash-and-carry, meaning it must pay cash in advance for services used, the person said.

Reuters