India’s second largest airline by passengers has been grounded, more than 16,000 employees are jobless and though there is talk of revival of Jet Airways through stake sale, there is no certainty of this happening.
Any potential bidder for Jet will need very deep pockets indeed to swallow the debt pile and additionally make fresh investments to get it back up.
Some say it would be easier for any interested bidder to start a new airline from scratch instead of taking on the Jet mess. As a consortium of state-owned banks (the lenders) goes through the motions of securing a binding bid for Jet, there is again talk of the airline being moved to the Insolvency and Bankruptcy (IBC) process in case stake sale fails.
Several questions remain about this entire rescue act for Jet by lenders, many acts of omission and commission which seem questionable. Why did the lenders, who are now leading the charge for rescue, allow the situation to go this far? Why did they not call in their money earlier? Why did they promise emergency funding and then renege on that promise? Why was the grand plan to convert debt into equity not put into action sooner and why was chairman Naresh Goyal allowed to continue for so long? The biggest question is this: why did lenders shy away from the IBC process, where at least some returns were assured?
This litany of woes about Jet and its so-called rescue plan brings to mind another near-grounding in the Indian skies, which also happened in the Modi government’s tenure but where timely measures saved the day.
SpiceJet, a low cost carrier (LCC) in which the Maran family held controlling stake, had to briefly cease operations in late 2014 when it ran out of money to even buy daily fuel to power its flights. The decision to halt operations came after aviation regulator DGCA banned forward sale of tickets by SpiceJet. The airline had anyway been sinking due to its own questionable practices and because of large fluctuation in currency and fuel prices at that time.
So what did the babus do in the case of SpiceJet? They did not leave it all to lenders and there was no IBC framework in place in India till then. The next best thing was to act swiftly and this is what happened. For one, the government quickly tapped SpiceJet’s former promoter and a BJP man, Ajay Singh, to come to the rescue with emergency fund infusion.
In the case of Jet, the lender consortium took weeks to force promoter Naresh Goyal to relinquish privileges and give up chairmanship. It hardly made any moves to find an investor outside the long-drawn stake sale process. And due to political compulsions, the consortium also shied away from putting Jet under IBC provisions.
Two, the government held off agencies like the Airports Authority of India (AAI), the aircraft lessors, oil companies and even private airports from demanding their dues from SpiceJet back then – all these liabilities were later cleared in tranches. This offered a critical respite to the airline. In the case of Jet, though, aircraft lessors were regularly de-registering aircraft and there are no indications that the government arms held off other creditors either.
The third help the government gave in the SpiceJet saga was to nudge market regulator SEBI to waive off the mandatory open offer condition when Ajay Singh was buying out the Marans. Under this provision, he would have had to make a mandatory open offer for some more equity, requiring more money.
In fact, reports suggest that Singh got back into SpiceJet at a pittance per share, forcing the Marans to invest even when they were selling off their stake entirely. No such assurance of open offer waiver has been given till now to any potential investors in Jet Airways, though Etihad Airways (an interested bidder) had sought such a concession early enough during the rescue plan.
Apart from all these concessions, Singh made sure there was a complete overhaul of management, liabilities were cleared with a lag and the turnaround took almost two years to be completed. In Jet’s case, even a management change was not enforced by the lenders.
This proactive and constant intervention by the government saved SpiceJet, but Jet’s fate continues to hang in the balance despite several arms of the government and state-owned banks trying to save it. A Facebook post by the private secretary to then civil aviation minister Ashok Gajapathi Raju, Krishna Kishore Jasthi, has explained how government’s proactive approach saved SpiceJet.
“One of the most satisfying achievements (while working as PS to Raju) was that of solidly standing by SpiceJet, when it was at its most critical juncture, supporting it during the crucial trying times and helping in transition to new ownership which infused the much-needed capital,” he says.
In June 2014, Spice Jet was in a “very bad” financial state. “SpiceJet fell into teething problems with mounting debts, difficulty in making payments due to AAI, airports at New Delhi and Mumbai run by the GMR and GVK groups, respectively, Income Tax Department, Indian Oil Corporation/Hindustan Petroleum Corporation, Lease charges to aircraft owners, payments to vendors for supplies etc.”
Jasthi says he took a month to study the situation and brief Raju. “Kingfisher closure had left thousands of people jobless with huge debts and large number of persons who booked tickets in advance, in peril. Closure of SpiceJet would have meant loss of over 20,000 direct and indirect jobs. Once closed, the chances of revival of an airline would be remote with debts piling on debts and insurmountable problems. I felt that in no way we should allow SpiceJet to go down.”
From July to December 2014, it was an extraordinarily trying time for SpiceJet. AAI and airports at Delhi and Mumbai wanted to ground SpiceJet aircraft for non-payment of dues, DGCA had issued notices for refund of huge number of tickets booked in advance by passengers and non-booking of further tickets. Oil Corporations had issued notices for stopping of fuelling and the I-T department attached their accounts for non-payment of TDS.
Aircraft lessors gave notices for return of aircraft and vendors began pressuring the airline for payment of dues.
“My gut feeling was that proactive approach will win the battle,” says Jasthi, adding that from July to December 2014, he held numerous daily meetings with various stakeholders to keep SpiceJet afloat.
“I had rounds of meetings with Chairman AAI, top management of Delhi and Mumbai airports and various others, to convince them to give a supportive hand to SpiceJet and defer the payments due etc. I strongly requested the then DGCA to allow SpiceJet to continue operations and to book tickets, as this was crucial for working capital requirements for meeting day-to-day expenses. I requested my colleagues in the I-T Department to give time to SpiceJet for payment of arrears.”
“I even went on to wake up the Private Secretary to the Petroleum Minister at midnight when the public sector oil corporations ordered stopping of fuel to SpiceJet from the next morning. Needless to say, partly due to their inherent good nature and partly due to my good relations with them, all these officials and others, very kindly lent a helping hand after my persuasion.”
Jasthi’s musings make one thing clear: there seems to be a lack of intent and efficacy in the rescuers who have taken it upon themselves to rescue Jet Airways.
(Author is a senior journalist. Views are personal.)