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Downfall of Jet Airways: Banks had seen writing on the wall with over a billion dollars to be paid back, but yet acted too late

Editor's note: This is part of a multi-article series on the downfall of Jet Airways and the path ahead for the cash-strapped airline.

It has been roughly a week now that Jet Airways has not had even a single plane up in the air. With every passing day, it looks like the management is losing the plot about having an airline which was supposed to be revived and is being disintegrated instead. Let there be no mincing of words: The airline, although one of India’s finest brand ambassadors abroad, was being run by just one person alone, Naresh Goyal.

The early signs of an airline under stress were all there in 2018. Jet Airways deferred the announcement of results for the first quarter of FY19 in August 2018, and asked its employees to take a pay cut. The fact that they had loans coming up to be paid (Rs 1,700 crores during December 2018-March 2019, Rs 2,444 crores during FY20 and Rs 2,167 crores during FY21), had been known to the banks for a very long time, and not just the last moment. The fact that the airline had a negative net worth was also established in its publicly available quarterly results for many years now. Yet, no recapitalisation was forthcoming.

Over a billion dollars to be paid back should have been reason enough to consider taking more interest and a pro-active approach, but it was not. So, the airline bided time. On 1 January, the other shoe too dropped. The loans had not been serviced and Jet Airways could finally be taken to task. But the banks did not have a game plan ready. They perhaps hoped this day would never come, but even by 31 December 2018, the airline had made a significant set of cutbacks, including unprofitable routes, rejig of network strategy and many other moves such as withdrawal of meals and lounges to passengers. The signs were clear that the airline did not have money.

 Downfall of Jet Airways: Banks had seen writing on the wall with over a billion dollars to be paid back, but yet acted too late

Representational image. Reuters.

Had the banks been ready with an approach plan, and various scenarios, for 1 January, 2019, they would have perhaps had the opportunity to take over the airline’s ownership sooner than later. One can understand why perhaps they wished that someone else would have been able to do it better.

As easy as it is to buy a ticket and get on a plane and collect your bags on the other end, the business of running an airline has thousands of moving parts, and requires specialised expertise. Again, the banks did not align with any aviation talent or experts for advice or interpretation, instead trying to figure out the business all by themselves.

By the time the bankers came to the conclusion that they should convert their interest in Jet Airways from debt to equity and take charge of the airline in the interim to sell it, the goalpost had moved. The owners of the aircraft that Jet Airways used had already been progressively grounding their aircraft on account of non-payment of dues over an extended period, chipping away at Jet Airways ability to offer a full-blown network.

The airline was no longer being able to offer a schedule that suited the needs of its customers and needed cash to pay up everyone, even if a bit of money to start operating the network again. In effect, it became a chicken and egg problem, where to retain the brand, the network and everything in between. If Jet Airways was a private-equity funded enterprise, perhaps it would have no problem getting itself another round of cash infusion, but with each passing day, the ask was getting bigger and the banks wouldn’t open the purse strings. The counterpoint, while never openly said, was the Kingfisher Airlines' experience, where banks went all-in, and the airline collapsed anyways.

In the meanwhile, towards the end of March 2019, the banks got a small victory, getting Naresh Goyal to leave the company’s board and Chairmanship, clearing the path for any potential investors to come in. Since November 2018, when the sale of Jet Airways was first discussed, the exit of Goyal was a key demand of any potential suitor, but he insisted on staying. Unfortunately, even after the chairman left, the airline did not get the promised Rs 1,500 crores cash infusion as a loan that it was promised by the banks.

Eventually, the airline had no option but to suspend operations. But even now, the banks have not taken a side. Bankers look at their job as getting all their loans back from Jet Airways, which is perfectly legit as a problem statement. Most of these lending banks are government-owned, so we, the taxpayers, fund the bill otherwise.

In the bank-led sale process, which is supposed to end on 10 May, there is no clear definition of what the bidders are expected to buy. It just blandly says, “identification of a suitable investor to acquire Ownership of the Company, on as is where is basis, and thereby, effect change in control and management of the Company and for settlement of the obligations of Company in relation to the Existing Facilities”.

Like you would imagine, a term sheet for an equity transaction states how much of a percentage of the equity of the company is being sold, but here, the door is wide open, stated to be between 31.2 percent of the airline to 75 percent of the airline. And the “as-is” clause is the most worrisome, because the banks have not worked with the management to make sure the “as is” stays fixed.

Every day we have planes leaving the Jet Airways fleet to join other airlines. Not just that, the aviation ministry is also giving away the slots (rights to operate a flight at a particular time on a particular route) to other airlines. That just makes it even more difficult for the airline to take off, even with a new owner.

So, had the banks been involved earlier and taken a more hands-on approach rather than dabbled with aviation over the months, perhaps they would have been able to get much further in the process to keep the airline alive with a new owner at this point of time, rather than pacing up and down the hallway, hoping for an investor to arrive. For aviation is like a Church, everyone enters, but few follow.

(The writer is a business travel & aviation journalist based in Mumbai, and the founder of the Indian frequent-traveller website Live From A Lounge (www.livefromalounge.com) and tweets at @LiveFromALounge)

Part 1: Govt can mount Satyam-type rescue on cash-strapped airline and make money on it as a smart investor

Part 2: How Naresh Goyal’s airline walked into a trap of its own making from where there was no return

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Updated Date: Apr 24, 2019 10:39:16 IST