Lenders of Jet Airways India Ltd. proposed a bailout of the beleaguered carrier, potentially paving the way for a revival of the airline that was on the verge of collapse.

Mumbai-based Jet Airways, which needs 85 billion rupees ($1.2 billion) to help it get back on its feet, will be revamped, with banks becoming the biggest shareholders of the company, according to a filing Thursday. The restructuring would involve a mix of debt-to-equity swap, new capital infusion and asset sales, the company said, without elaborating.

The proposal, reached after weeks of negotiations, may provide a respite to the struggling carrier, which still faces intense competition from low-cost rivals, high fuel prices and local levies — conditions that brought it to its knees. Jet Airways, one of the first private Indian airlines to dominate the local market after the government ended state monopoly in the early 1990s, has more accumulated losses than any publicly-traded Asian carrier apart from Pakistan International Airlines Corp.

The proposed bailout, advanced by State Bank of India, needs approvals from all lenders, a banking industry group, founder Naresh Goyal and the board of Etihad Airways PJSC, which owns 24 percent of the carrier, according to the statement. Jet Airways has called for an extraordinary general meeting on Feb. 21 to seek shareholder consent for the deal and to name lenders’ nominees to the board.

Banks will own 114 million shares of Jet Airways after the restructuring. Thursday’s statement didn’t say how much Goyal and Etihad would hold. The founder-chairman currently owns 51 percent.

Kingfisher Echoes

The rescue package is reminiscent of a similar bailout of Kingfisher Airlines Ltd. in 2011, when lenders including SBI converted existing debt into the loss-making company’s shares. But the carrier shut down three years later.

Although banks, with their stake in Jet Airways and representation on the board, will have more say in its operations, the Kingfisher episode underscores the perils posed by this move. Lenders in India have already been under pressure from regulators to clean up about $120 billion of soured debt.

India has been a tough market to crack for airlines despite world-beating passenger growth as provincial taxes of as much of 30 percent makes jet fuel the costliest in Asia.

Shares of Jet Airways, which posted a fourth consecutive quarterly loss earlier on Thursday, have slumped 72 percent in the past 12 months, compared with a 5 percent jump in the benchmark S&P BSE Sensex index. They closed up 0.7 percent to 225.90 rupees in Mumbai.

Price Sensitive

On top of that, a slew of budget carriers including market leader IndiGo have lured passengers with low-cost, no-frills and on-time flights, forcing Jet Airways to resort to discounts. A price-sensitive consumer base that refuses to pay a premium for in-flight meals and on-board entertainment also means pressure on margins.

The cut throat competition and high costs led to the collapse of full-service carrier Kingfisher Airlines earlier this decade, while state-owned flag carrier Air India has needed repeated bailouts. Even budget airline SpiceJet teetered in 2014 before its founders returned to gain control and revive the company. Jet Airways has reported losses in all but two of the past 11 years.

Goyal, a former ticket agent turned entrepreneur, is widely regarded as the pioneer of private airlines in India — the world’s fastest growing aviation market. Jet Airways has been forced to cancel flights to smaller destinations as it falls behind on payments to lenders and its employees. It had 80.5 billion rupees of net debt as of Sept. 30.

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Photo Credit: Jet Airways has been on the verge of going out of business, but the Indian carrier may have found a lifeline. Bloomberg