Jet Airways without Naresh Goyal as chairman: Will new stakeholders be able to get beleagured airline off ground?

The new management will be under immense scrutiny of shareholder groups to correct everything that has gone wrong under Naresh Goyal’s leadership.

Manoj Kumar March 02, 2019 09:29:15 IST
Jet Airways without Naresh Goyal as chairman: Will new stakeholders be able to get beleagured airline off ground?
  • For Naresh Goyal, the going has been becoming tougher and has led to him making a decision to step down

  • With Goyal’s exit, the board would comprise of nominees of the banks in a majority

  • The challenges for the new management would be immense

Jet Airways sliding to Number 2 rank in the Indian aviation space on a standalone basis explains some of the rationale that seems to have played on Naresh Goyal while agreeing to step down as Chairman of the beleaguered airline to give a new lease of life to an airline which has survived many rough patches despite a string of troubling legacy issues.

Goyal’s exit comes at a time when options to find a cure for the financial challenges for Jet were running out rapidly with further bank loans out of reach and new investors not responding adequately to Goyal’s reach-outs, swiftly pushing the airline to the present situation.

The provisional resolution plan providing for lenders to become largest shareholders following conversion of debt into shares underlines the dilemma and compulsion for both, Goyal as well as the shareholders.

While the lenders have been continuously working on steps to recover the debt from Jet, the toss-up for lenders was to either push the airline into a resolution process by initiating proceedings before National Company Law Tribunal (NCLT) or to rework the debt to enable Jet to tide over the crisis.

In deciding to rework the debt, the banks have weighed challenges around the resolution process before NCLT and the inordinate delays in relation to ongoing resolution proceedings of some of the big ticket companies that have not gone down well with lenders. In addition to the delays, the rapid changes in the insolvency laws and the ever-increasing size of the pie to be shared with the operational creditors have only added to the unpredictability of realisation of dues from Jet.

Jet Airways without Naresh Goyal as chairman Will new stakeholders be able to get beleagured airline off ground

A file photo of Jet Airways' promoter Naresh Goyal. AFP

Though conversion of debt into shares in a way is a haircut taken by the banks since the shares would not carry fixed returns which the banks were entitled to as interest and other charges as a lender, the crisis at Jet would only mount manifold with future debt repayments to the tune of about Rs 1,700 crore by March 2019, Rs 2,445 crore during the financial year 2020 and about Rs 2,170 crores during the financial year 2021.

This apart, additional pressure triggering from revenues and costs of crude oil would continue to contribute to the financial stress, thus leaving no further waiting time to lenders as well as to Goyal.

The call taken by lenders to take a haircut and acquire larger shareholding in Jet clearly signals that the insolvency process is not geared up to meet such situations and as such the lenders are compelled to proceed further with the troubled legacies of Jet on one hand and a haircut on returns on the other hand.

For Goyal, the going has been becoming tougher and has ultimately brought the airline to the hallway of the lenders where Jet has to walk forward alone and Goyal’s innings has to come to an end as chairman. Not long back Goyal had refused to give up chairmanship and insisted on pulling Jet out of the crisis by further equity contribution by Jet and Etihad. Goyal has been known to find his way through troubled times all along.

Way back in 2007 Goyal lapped Sahara against heavy odds which took him 24 months to overcome. Since the openings up of the skies in India, Jet has been the only private airline to survive thus far despite its share of challenges including the expulsion and later re-joining of 1,900 employees, trouble with pilots and crude prices.

Under pressure of financial crisis, Goyal had been approaching investors including the Tatas as well as Etihad to make investments in Jet which did not elicit any positive results.

Etihad has been reviewing their own strategy with respect to its minority stake in comparatively regional and smaller markets like India. Etihad’s $2 billion losses in 2016 has put pressure on its ability to further fund such investments in regional markets where it holds minority stake and in fact the airline would look for an opportunity to exit from Jet. It is also understood that following the conversion in debt into equity and other related terms of the provisional resolution plan, Goyal’s stake in Jet would fall to around 22 percent from the present 51 percent majority stake.

Therefore the dilemma for Goyal has been to continue to lead the company with deepening financial crisis which would have left the banks with no other option but to initiate resolution proceedings before NCLT or to alternately give up control and leadership of Jet for enabling a step toward turnaround of Jet.

As much as banks are wary about rushing to NCLT in such circumstances, for Goyal as well, the NCLT route is full of potholes and in-fact capable of bringing Jet to complete halt in a manner similar as the fate of Kingfisher earlier. Since August 2018 when Jet signalled that its financial crisis has reached the brink, a multitude of state holders have held forth on various counts including lack of transparency, corporate governance and instances of wasteful expenses incurred by Jet.

With Goyal’s exit, the board would comprise of nominees of the banks in a majority and decision-making at all levels would have a much deeper oversight from the lenders. Additionally, even the business leadership would be carried out professionally with strengthening corporate governance practices.

The challenges for the new management would be immense and would include taking appropriate action against any instances of irregularities of the previous management under Goyal as and when such issues come to the fore going forward.

Retail shareholders have alleged that they have found themselves to be at the receiving end as a result of a number of legacy issues under Goyal’s leadership. Therefore, the new management will be under immense scrutiny of shareholder groups to correct everything that has gone wrong under Goyal’s leadership to stop the slide and make a turnaround. The banks will take steps to make Jet attractive for them to divest at a later date.

(Kumar is the founder & managing partner of Hammurabi & Solomon Partners and a visiting fellow with the Observer Research Foundation)

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