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The Jet Imbroglio

Prosenjit Datta     April 15, 2019

The banks have been spared the blushes, at least temporarily, in the case of Jet Airways. After extending the deadline for submission of Expression of Interest (EoI), they have managed to attract several potential suitors.

This reportedly includes several private equity firms as well as Abu Dhabi- based Etihad Airways, which had 24 per cent stake but refused overtures from banks earlier to put in additional money. Naresh Goyal, the founder of the airline, who had been ejected last week by the lenders as a condition for lending emergency funds to the airline, submitted his last minute EoI for the stake on sale. Whether it is with a partner or on his own is not clear.

The government, too, must be heaving a big sigh of relief. It did not want one of India's most prominent airlines to go bankrupt under its watch, especially after it had made so much political capital over the banks' mishandling of Kingfisher Airlines loans during the UPA era.

Of course, EoIs do not mean anything much - and whether Jet will finally find a buyer is an open question. Now the interested parties will do due diligence, negotiate with banks to see if the lenders are willing to take a haircut, and make an offer that makes sense. The banks cannot hope to attract a buyer unless they are willing to make concessions. And even then, potential buyers will have to weigh what they are actually getting and what they will have to put in to make Jet fly again properly.

Jet has some attractive assets - these are its slots in Mumbai, Delhi and other Indian airports as well as its bilateral rights in international airports. All those are things that many airlines will find appealing. Against that, though, the potential buyer will also have to take into account the troubles it is taking on. Most of Jet's planes have been taken away by lessors and it has just over a dozen planes left. Lenders who gave money to buy those planes are threatening to take even those away. It has a high fixed cost structure compared to other airlines in India. (Possibly, only Air India has a worse cost structure.) It has disgruntled employees who are owed dues. And it has operational creditors who have threatened to cut off supplies and other services if they are not paid for past bills.

Apart from that, it has a debt of over Rs 8,500 crore plus. And it has a founder who is fuming and still trying to gain control of the airline. So, expect multiple legal challenges.

There is no easy solution. And I don't expect this story to end well for most stakeholders.


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