Lessons from Jet

No promoter can be treated bigger than the company

As the last flight of what once was India’s second-largest private airline landed in Mumbai at 12.30 am on Wednesday last week, the pilot’s message said: “We hope to fly again soon. When we do, do book with us.” It was a poignant moment for 25-year-old Jet Airways, but the indefinite suspension of operations was hardly surprising for an airline that had only five functional planes after starting the year with 119. With Rs 8,400 crore of debt, and the failure to receive a stopgap loan from its lenders as part of a rescue deal agreed in late March, Jet’s wings had not only been clipped; they were simply taken away. The airline is now clearly staring down the barrel. It is not difficult to figure out why Jet’s lenders developed cold feet after announcing on March 25 a resolution plan that envisaged stake sale and “priority funding”. It became simply impossible to extend the funds for two reasons: One, the airline’s cash flow was severely impacted; and two, the Supreme Court quashed the Reserve Bank of India’s February 12, 2018, circular on stressed assets resolution. The resolution plan was built on the premise of that circular. The fear of witch-hunt by investigative agencies must have also weighed on the bankers’ minds. Even a reduced amount of Rs 400 crore as requested by the airline was an unviable option, as most of the funds sought were for the payment of salaries and dues to lessors.

But this does not absolve banks of the blame for the mess that Jet finds itself in. They gave a long rope to Naresh Goyal, the promoter of the airline, even though Jet was trapped in a vortex with seemingly no end in sight for months. There were many signals of protracted mismanagement before Jet defaulted on its repayments at the end of 2018. The airline was careening out of control with continuing losses and a severe cash crunch, and Jet’s auditor raised questions over its survival in August last year. Yet, the banks did not think it was necessary to save the airline by forcing Mr Goyal to bring in strategic investors. Instead, they convinced themselves that they could convert their debt into equity and keep it going, even though past experience with such endeavours has been hardly encouraging. Banks also refused to take the Insolvency and Bankruptcy Code route, which was enacted precisely to handle situations such as what Jet found itself in.

What prompted banks to treat Mr Goyal with kid gloves for so long is unknown, but it is probably because the Jet promoter had many important friends on speed dial. The fear of annoying the political powers who would be wary of the nasty optics of large-scale job losses and spike in airfares seems to have also played a part, though it must be said that the government appears to have stayed out of the picture and left it to bankers and the airline management to sort things out, and minimised disruption by temporarily re-assigning airport slots to other airlines. At this point, however, it does appear that a miracle will be needed for Jet to take wing again. Finding an investor is hardly going to be an easy task, given that nothing much remains of the airline, except for some flying rights, a few landing and parking slots, an eroding talent base, and a shrinking brand value. The important lesson from the Jet saga is that no promoter should be treated bigger than the organisation.