Jet Airways: Meet The Airlines' New Owners
After a resolution process lasting nearly 24 months, insolvent Jet Airways (India) Ltd. has found a buyer.
On Tuesday, a consortium of U.K.-based Kalrock Capital Partners and Murari Lal Jalan was approved as successful resolution applicant for the beleaguered airline, by the National Company Law Tribunal. In its order the tribunal asked the government to decide on giving slots to Jet Airways in a way which does not make the resolution process infructuous.
The consortium had been selected as the winning bidder by Jet Airways' financial creditors in October. The Kalrock-Jalan consortium trumped a bid submitted by a consortium of Imperial Capital Investments, Flight Simulation Technique Centre and Big Charter Pvt. Sanjay Mandavia, a former pilot, runs Flight Simulation Technique Centre and is a director at Big Charter Pvt.
Kalrock-Jalan Consortium: Who Are They?
Headquartered in London, Kalrock Capital is a global financial advisory firm, which has acted as principal investor as well as co-investor in alternative asset classes for over 20 years, according to information available on the company’s website. Led by Florian Fritsch, Kalrock Capital has interests in real estate financing, venture capital and special situations.
In the real estate financing business, Kalrock Capital is working with developers in the German-speaking market. In its role as a venture capital investor, Kalrock has investied in companies which deal with consumer internet, SaaS/enterprise software, clean tech and e-mobility. The special situation investment vertical is aimed at investing capital from large investors through discreet, tailormade solutions, according to the company’s website. It adds that, Kalrock Capital is experienced in financial innovation using special purpose acquisition companies or SPACs, credit and debt instruments to protect the capital that they are entrusted with.
According to data available on Companies House, a public database for companies registered in the U.K., Kalrock Capital Management had fixed assets worth £6,525 (British) and current assets worth £267,206 as of December 2019. In the year ended October 2018, the respective figures were at £5,682 and £99,896. The rise in current assets was largely owing to £251,991 owed by debtors to Kalrock Capital, as of December 2019.
For an asset management company, current assets include cash and equivalents on its books.
According to Manoj Narender Madnani, a board member at Kalrock and one of the people leading the bid for Jet Airways, the intention is to tap into the potential of the Indian aviation market through Jet Airways.
“We understand that India is the third-largest domestic aviation market in the world. The Indian market in our view is going to driven by VFR, which is people who want to visit friends and relatives," Madnani had told BloombergQuint in an interview in October. "The second factor is also global supply chain and logistics are going to ensure that Jet has significant infrastructure in cargo.”
Kalrock Capital will be focused on keeping Jet Airways as a full service airline, rather than convert it into a budget airline, Madnani had said. Apart from Jet Airways, only Air India has a full suit of services in the Indian aviation sector so far.
The bidder has already identified candidates for the senior leadership team of the airline, he said. These officials will be a mix of Indian and foreign aviation industry executives who will help Kalrock Capital rejuvenate Jet Airways and run an efficient business.
“There is going to be high level of corporate governance at the core, which is what we bring as our expertise,” Madnani had said.
Jalan, who is partnering Kalrock, is a real estate developer with interests in the United Arab Emirates, Russia, Uzbekistan and India. He was brought in to provide expertise as an Indian businessman with global exposure, Madnani had said. He did not clarify whether Jalan or his representatives will hold any positions in Jet Airways or its board.
As per the IBC, the winning bidder will need approval from the National Company Law Tribunal before it can take over Jet Airways fully and implement its turnaround strategy.
Can They Really Revive Jet Airways?
Neither Kalrock Capital nor Jalan have exposure to aviation sector companies. But prior to joining Kalrock Capital, Madnani and his colleague John Oram have worked with Polish billionaire Jan Kulczyk’s family business, heading special situation investments in the logistics and cargo sectors, he said.
As per a presentation by Grant Thornton, as of July 2019, Jet Airways controlled 12 aircraft in its fleet and had over 8,800 employees on its roster. There is no updated information available on the airline’s assets or employee situation.
All the new owners have is control over a piece of paper which states that they own the brand and the logo of Jet Airways, Mark D Martin, an aviation expert and founder and chief executive officer at Martin Consulting, had told BloombergQuint.
“To recreate Jet Airways, the new owners will need to spend an estimated Rs 10,000 crore in addition to the SBI-negotiated sale price to restart the airline and get key approvals such as the air operator’s certificate and the aircraft maintenance approvals,” Martin had said in October.
Additionally, the new owners will need to spend another estimated Rs 15,000 crore in working capital to restore operations to over the years whilst winning the trust back of the industry, he added.
What Banks Will Get Out Of The Resolution?
Jet Airways was admitted to the IBC in June 2019, after the airline was grounded in April. Financial creditors led by State Bank of India have claims worth Rs 7,460 crore against the airline, as per the latest information available on its website. Operational creditors, including workmen and employees, also have claims worth over Rs 7,000 admitted by the resolution professional.
According to a person with direct knowledge of the deal, lenders will be paid up to Rs 1,000 crore over five years through non-convertible debentures. Kalrock Capital will also provide Rs 900-1,000 crore in working capital to the ailing airline. And, the financial creditors are set to get a 10% equity stake in Jet Airways. While the exact haircut for lenders is difficult to quantify, banks and other financial creditors are expected to write off considerable portions of their debt exposures.
Martin of Martin Consulting said the new owners will need to spend considerable amount of time to regain the trust of lessors and other creditors. Without this in place, they will struggle to get Jet Airways back to the way it was.
“Jet Airways was what it was because of Naresh Goyal. It took him roughly 15 years to build the brand and to command the kind of respect he commanded in the aviation space. For the new owners, who also do not have any aviation experience, it is likely to take a long time to get Jet Airways back in shape,” Martin had said.