Hurtling To The Ground: An Insider's View Of Jet Airways Resolution
Late 2018, State Bank of India's head office at Nariman Point, Mumbai, became a beehive of activity. News of a severe cash crunch at Jet Airways Ltd., India's largest private airline at the time, was spreading fast and the responsibility of finding a solution fell on bankers led by SBI.
Multiple unfruitful meetings later, tempers were running high among bankers and the stakeholders of the airline. Not only were bankers trying to convince Naresh Goyal, the founder, to step down and allow external investors to take control, Jet's international partner and minority stakeholder Etihad Airways was also becoming a stumbling block.
During one such meeting, Tony Douglas, chief executive of Etihad Airways, lost his composure over an argument and "started moving towards Arijit menacingly". Arijit Basu was a managing director at SBI.
"It was only my strong intervention that stopped Tony in his tracks. Things were indeed beginning to get ugly and we were running out of time for resolving the Jet Airways quandary!" recalls Rajnish Kumar, former chairman at SBI, in his new book, "The Custodian Of Trust".
After months of trying to resolve the stress at Jet Airways, all their plans failed and the airline was grounded in April 2019. It had to eventually be put under bankruptcy proceedings, with multiple failed rounds of bidding. A consortium of U.A.E.-based investor Murari Lal Jalan and Kalrock Capital is now in control of the airline and is aiming to relaunch operations next year.
What Happened At Jet?
Before the troubles at the airline became public, investment bankers appointed by Goyal landed at SBI, with a proposal to borrow additional funds. The plan involved pledging Jet Airway's equity stake in Jet Privilege Pvt., a company that it owned only partly. Etihad Airways, which owned 24% of Jet Airways, held 50.1% in Jet Privilege.
The investment bankers valued Jet Privilege in excess of $1 billion, but valuations were debatable as the shares were not listed and were closely held with no secondary market. Kumar was not keen on getting involved.
The plan was then restructured to pledging six Boeing 777s, three Boeing 737s and three Airbus planes against the financing requirement. Here too, Kumar said, SBI had no experience in financing aircraft and advised the bankers to explore other options.
The financial problems had been mounting over the years though, owing to Jet Airway's acquisition of much smaller Sahara Airlines in 2007, Kumar explains. The acquisition did not make much sense since Jet Airways was forced to manage a budget airline alongside running its own premium full-service carrier. This somehow diluted the Jet brand, which was already facing competition from smaller rivals.
"The company was thus falling apart because of its inability to compete with budget airlines and IndiGo had rapidly started capturing the market share," Kumar says in his book.
On top of this, governance concerns were also mounting, with allegations that the CEO and management at Jet Airways were not given due authority to run the airline professionally. Goyal was still chairman.
Kumar was a fan of Jet Airways, Goyal and his rags-to-riches story. But the Jet Airways resolution process showed him a promoter who was "losing his clout and control but who still wanted to dictate terms".
During the entire resolution process, he said Goyal remained adamantly in the cockpit at Jet Airways, paying no heed to advice from bankers, stakeholders, potential investors and other well-wishers.
"...for Naresh, Jet Airways was his baby that he had reared since birth, and for him giving up a company which he had built from scratch was unthinkable," Kumar writes.
At one point, the Tata Group considered an investment in Jet Airways and was conducting due diligence through a team positioned in London. However, like many other plans, this too failed owing to Goyal's insistence to retain permanent chairmanship and board seats for his son and another nominee.
On its part, the team at Etihad Airways was "equally indecisive and vacillating about handing over control", writes Kumar.
The Doomed Resolution Process
In the months which followed, SBI and other lenders asked Jet Airways to come up with a resolution plan which worked for everyone. The discussion veered toward additional capital infusion by Etihad Airways, which could still raise its stake up to 49% in Jet Airways. Despite multiple meetings, Goyal and Etihad Airways could not come to a conclusive decision on the control of the company or the composition of the board.
Another difficult issue in finding a good resolution plan was also the Securities and Exchanges Board of India's rules governing preferential allotment of shares. The SEBI rules would have meant that the price for such an allotment would have to be set at Rs 270, nearly double of Rs 140 which Etihad Airways was prepared to pay.
Moreover, Etihad Airways would have had to make an open offer to existing shareholders because it was acquiring more than 25% stake in Jet Airways.
"This is an onerous condition for any potential investor to acquire a stressed company. Several representations to SEBI to grant an exemption went unheeded," Kumar writes.
To add to this, keeping the flight operations running was turning out to be expensive. The total funding requirement for the airline, according to an estimate by SBI Capital Markets and McKinsey & Co, was over Rs 10,000 crore.
With no real consensus emerging on the resolution by the promoters, the lenders stepped in and created a provisional plan. That involved converting debt to equity at Jet Airways at Re 1, with majority stake coming to lenders. An interim funding of Rs 750 crore was agreed upon, with contribution from lenders as well as the promoters. The plan also involved appointing former SBI Chairman AK Purwar and aviation expert Kapil Kaul on Jet Airways' board as nominees, Kumar explained.
By February 2019, the lenders had reached an agreement on the resolution plan. Public shareholders of the airline agreed, the board at Jet Airways agreed and even Goyal agreed to bring down his stake and maintain it at 22% with the capital infusion. The board of Etihad Airways though rejected the plan for inexplicable reasons, rendering it useless.
The Grounding And The Aftermath
After the resolution process came to a halt, the Ministry of Finance convened a meeting in March 2019, on the next steps needed. Invoking the Insolvency & Bankruptcy Code was discussed, but lenders felt it was a "Hobson's choice". With the IBC, the airline would have been immediately grounded and would have put off all potential investors. So the lenders waited.
Eventually though, owing to strikes by pilots who were not being paid, action by international lessors and other stakeholders, Jet Airways was grounded in April 2019. Lenders were then forced to take up the insolvency route as all the potential investors backed out of discussions.
"...only Etihad gave a conditional offer which was impossible for the lenders to accept," Kumar writes.
After Jet Airways was admitted under insolvency in June 2019, lenders conducted multiple rounds of bidding, but always came up short. Things were largely looking hopeless, as without any firm bids the company would have gone under liquidation.
Finally in May 2020, the lenders took one last shot at the bidding process and ended it with approving the Jalan-Kalrock consortium as winners. In June 2021, the National Company Law Tribunal also approved the resolution plan and handed Jet Airways to the new owners.
"It's my desire to board the first flight of Jet 2.0," Kumar writes. "It would be my way of paying tribute to an airline which was once the pride of India, loved by flyers across the spectrum."