The end, eventually, came quicker than many thought. After delaying the inevitable for as long as he could, Jet Airways’ founder and main promoter Naresh Goyal reportedly resigned from the board of the beleaguered airline he founded nearly two decades and a half ago. Goyal’s wife Anita also stepped down along with him.
A formal announcement should be out shortly. ET Now said Etihad stake will get reduced to 12% from 24%, and Naresh Goyal’s stake also reduces to 25.5% from 51%.
For quite some time it was touch-and-go for the troubled airline facing its worst-ever crisis. It had delayed payments to most vendors including plane leasing firms. Salaries of its employees were also being delayed inordinately. All options for the founders were getting exhausted fast. Especially after Etihad’s change of heart, crash-landing was just a matter of time for the beleaguered Goyals.
Beginning of the endgame: The funding tangle
The writing on the wall had become clear a few days ago when SBI asked Goyal and three fellow director to resign in view of the airline edging closer to the brink after more and more planes began getting grounded every week for lack of funds. SBI, the lead lender of the consortium that extended loans to Jet, also clearly signalled that it would not be picking up Etihad’s 24% stake.
SBI chief Rajnish Kumar, however, had insisted that forcing the airline out of business was a bad idea. “We believe that it is in everybody’s interest that Jet Airways continues to fly,” he said.
As reported by ET, the MoU on the fund infusion plan required Jet’s lenders to convert debt into 114 million shares. The airline had already enhanced its share capital and as a next step, was supposed issue fresh shares via a rights issue. Under the MoU, Etihad was supposed to infuse Rs 1,600-1,900 crore for a 24.9% stake, just below the 25% threshold which necessitates an open offer.
Lenders were to pump in another Rs 1,000 crore for a 29.5% stake. The carrier’s debt worth about Rs 450 crore was to be converted into equity. As per the plan, Goyal — who had already put in Rs 250 crore, would see his holding at about 17.1% and not more than 22%.
The Etihad hardball
Etihad had earlier put a big spanner in Goyal plans by refusing to play ball if the restructuring strategy for Jet was not reworked. The UAE airline said it would not infuse emergency funds of Rs 750 crore if it didn’t find the resolution plan acceptable. Jet’s prospects went from bad to outright bleak after Etihad dug in its heels and said it won’t be part of the fundraising plan drawn up by the consortium. This left Jet’s lenders with practically no option to save the drowning airline.
Under the resolution plan, lenders were to give Rs 750 crore to Jet on an immediate basis, with a comparable amount supposed to be raised by Etihad. Jet’s fate was sealed for all practical purposes when Etihad refused to comply with this condition. According to sources, the lenders too refused to accept Etihad’s condition that it should have the right of first refusal if any of them decides to exit Jet.
Delaying the inevitable
Naresh Goyal had tried every trick in the book to keep from ceding control of the airline he founded 25 years ago. When pressure from creditors reached a crescendo, he had reportedly agreed to step down as chairman, albeit with a big rider attached — that his son Nivaan be allowed to take his place at the helm.
Signs of the coming crisis were evident as early as mid-December last year when Nikos Kardassis, widely hailed as Naresh Goyal’s turnaround man, abruptly left Jet. The Greek-American aviation veteran, whom Goyal had brought in to help him turn Jet around, went on leave but never returned.
A history of troubles
Memories of Kingfisher, the biggest aviation fiasco in India’s history, are still fresh. The airline that had the second largest share in the domestic travel market finally went under in 2012 after years of losses and high debts.
Some years ago, low-cost airline SpiceJet too was about to crash-land for more or less similar reasons as Jet’s. It eventually made a successful comeback mainly owing to the business savvy of its new owner — he managed to recast every single deal that the airline had been beholden to.
What now?
Industry experts are unanimous that Jet’s troubled basically started when its competitors — no-frills carriers SpiceJet and IndiGo — took the pricing war to a whole new level. The two airlines are expected to keep on at their pricing game, which means capital infusion is the only thing that can keep Jet flying. Near-term losses are unavoidable for Jet, and only a sufficient amount of capital will help the airline deal with that blow. A lot is going to depend on what move — more capital infusion or a change of hands — Jet’s lenders go in for next.
Of high interest in aviation circles will also be what path the government chooses to take. Last November, civil aviation minister Suresh Prabhu said that reviving private carriers like Jet is not his mandate, but that of Jet’s management.
In all likelihood, as things stand, the government can’t probably afford to let Jet fly into the sunset with its 23,000 jobs as a fraught election season nears. But here’s the moot point: can it muster the political will to treat Jet differently than it had threated Kingfisher?
All said and done, the first chapter of the turbulent Jet Aiways saga has now come to an end. Will the new chapter be any different? The fate of Jet, as they say, is truly up in the air now.
