Crash landing

In the end, the hoped-for knight-in-shining armour never arrived and Jet Airways is now in insolvency court. This marks the last act in a long-winded saga that saw the beleaguered airline and its stakeholders lurch from despondency to hope to gloom once again. The debt-laden airline’s troubles began when it defaulted on a loan last December. Hectic salvage attempts at the airline since then have come to naught. Thousands of employees, and many operational creditors may end up being the biggest losers in the fiasco.

Among the many factors that led to this state of affairs was the promoter Naresh Goyal’s intransigence on valuation and not ceding majority control — till he was eventually forced out in end-March. Then came the volte-face by the SBI-led lender consortium on its emergency funding commitment of ₹1,500 crore, which scuttled the bidding process. The airline’s already truncated operations rapidly unravelled and it stopped flying mid-April. Jet’s assets — prized airport slots, valuable fleet, trained employees — were up for grabs and the competition has since moved in for the kill. Not surprisingly, most potential suitors for Jet Airways backed off and just one conditional bid was received for a minority stake from strategic partner Etihad Airways. Later, the Hinduja Group also threw its hat into the ring. But lenders seem to have found these offers unappealing and have now decided to refer Jet to the National Company Law Tribunal (NCLT) for insolvency proceedings.

Higher value could have been salvaged for all of Jet’s stakeholders, had the lenders acted sooner and more decisively. The saga as it has played out has been beset with avoidable delays and wrong signals. First, Naresh Goyal was given an inordinately long rope by the lenders which worked to the detriment of everyone else. Thankfully the prospect of a backdoor entry by the promoter was thwarted. But the lenders’ decision to put off the IBC route in favour of a majority equity stake for themselves is difficult to explain. This leads one to wonder whether the need to avoid the bad optics of job losses and fare hikes in the election season was at play. Debt restructuring was a more pragmatic course if they were worried about long delays under IBC but that required lenders to follow through on their emergency funding commitment. It isn’t clear what really changed in a fortnight that the lenders backtracked on that commitment. In the bargain, almost everyone except Jet’s rivals have lost value. While the creative destruction cycle in businesses should be allowed to play out, the process should be fair, transparent and above reproach. The lenders now say that under the IBC, it is possible to give potential investors the exemptions they seek from SEBI norms. This offers a glimmer of hope that some resolution, even if sub-optimal, may be possible. But stakeholders should keep expectations low, given that the resolution of cases so far referred under IBC have been fraught with long delays and disputes.

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