A notice to the stock exchanges from Jet Airways spelled out momentous changes to India’s notoriously difficult domestic aviation market. The most remarkable news emanating from this notice was the departure of Naresh Goyal, a man who singlehandedly shaped the fortunes of the airline industry through intense lobbying over the last quarter of a century, from an airline he started from scratch. He will no longer have a board seat on Jet, will cease to be the airline’s chairman and all indications point to a significant dilution of his equity stake in the airline. From promoter, Goyal would be relegated to a mere investor.
The second remarkable inference from that notice to the exchanges is this: India now has two state-owned airlines and neither is doing particularly well. State-owned banks together with other government entities will now own more than 50% in Jet; the government already owns 100% of Air India and both the airlines are heavily indebted besides piling up losses. The government has not exactly been an efficient manager of Air India, where accumulated losses in 2017-18 were higher than the country’s health budget that year and the debt on its books stood at nearly Rs 50,000 crore. Taxpayer funds have forever funded Air India’s – or government’s – inefficiencies and probably would now be stretched to funding Jet’s operations under the new management by state-owned banks.
The third takeaway from the notice is also worth a mention: banks are committed to finding an investor for Jet Airways by the June quarter, which means just after the new government has taken oath at the Centre. As per BSE, the shareholding of Jet at the end of December was thus: Naresh Goyal 51%, Etihad Airways 24% while the rest was public shareholding. Now, banks plus other government institutions would hold a little over 50% stake, Etihad is expected to sell its share and exit while Goyal’s would be diluted to a minority.
And amid all this upheaval, Jet will get up to Rs 1,500 crore “immediate funding” as debt from lenders, the notice added. This money will come from the state-owned banks and is being seen as the carrot which was dangled to get Goyal to relinquish charge.
In the notice issued to BSE after a board meeting, the airline said, “The board approved, subject to and upon receipt of the relevant approvals and compliance of the applicable laws: a) issue of 11.4 crore equity shares of the company to the lenders upon conversion of Re 1 of the outstanding debt; b) Resignation by Mr Naresh Goyal, Mrs. Anita Goyal and Mr. Kevin Knight, as directors of the company, and induction of 2 (two) nominee directors of lenders. Additionally, Mr Goyal will also cease to be the chairman of the company; c) creation of appropriate security over the company's assets for securing the existing facilities extended by the lenders and the proposed immediate funding support of up to Rs 1,500 crore by way of issue of appropriate debt instrument and constitution of an Interim Management Committee to manage and monitor the daily operations and cash flow of the company”.
By taking over majority equity and management of Jet Airways, the government — through banks and other institutions — has shown that managing optics is far more important than plain common sense. In an industry which promoters believe is anyway the fastest route to convert billions into millions, what gives the lending banks (lead by SBI) the confidence that a buyer for debt-laden and loss-making Jet Airways can be found in a short span of three months?
The track record of the government and its advisers in offloading airlines isn’t exactly glorious. The government had, around the same time last year, tried unsuccessfully to offload majority equity in Air India too, but the sale bombed as the babus and advisers to the sale could not make up their minds on two crucial aspects: whether to exit Air India completely and the quantum of debt burden of the airline to be passed on to potential buyers.
There is really no evidence to suggest that in the case of Jet Airways, the lenders will be any more successful in selling the airline to an investor. Who would want to take over more than Rs 10,000 crore of debt, along with extinguished parking slots and a demoralised workforce? The resolution plan stitched together by Jet’s lenders is nothing but a face-saver for the NDA government, which cannot have a large airline employing thousands grounded just before the all-crucial Lok Sabha polls. There seems to be little thought to what happens after the new government has been formed — for the basics of the airline business and the poor financial status of Jet are unlikely to be repaired in the short term.
As news of Goyal stepping down from the board of his airline came in, at least one competing airline promoter expressed sadness at the developments. SpiceJet’s Ajay Singh said, “Today is indeed a sad day for Indian aviation. By launching a truly world-class airline, Naresh and Anita Goyal made India proud. This is also a wake-up call for Indian policy makers. We urgently need to address structural challenges that make India’s airlines uncompetitive to airlines around the world.”
So why was Jet not being referred to the Insolvency and Bankruptcy (IBC) process, which has seen some success in the last two years, instead of lenders taking control and trying to find a buyer eventually? People involved with several IBC cases have said fear of job losses should have pushed the lenders of Jet towards, and not away, from IBC. Had IBC process been initiated, there would have been a moratorium on aircraft lessors from grounding more aircraft and also on all other stakeholders from taking any coercive action against Jet. The airline would have been saved from losing more aircraft, airport slots etc.
And as a second step, an independent professional would have been appointed to run the airline, with support from the current management. The rapidly depleting value of the enterprise could then have been preserved. Why the lenders chose to work out a limp solution outside the IBC process is anybody’s guess, but now that they have put into action their own hastily crafted rescue plan, one thing is clear: more of taxpayer funds will likely be sunk into this airline in the short term, at least till a new government is in place, before sense prevails.
(The author is a senior journalist)
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