Companies

A year after shutting down operations, Jet Airways awaits new owners

Forum Gandhi Mumbai | Updated on April 15, 2020 Published on April 15, 2020

Over 15 entities have shown interest in acquiring stake in the Indian airline but no financial bids yet

“It was today, one year ago, I operated my last flight for Jet Airways,” wrote Tapesh Kumar in a Facebook post on April 9.

“Little did I know that it would be the last time I’d be wearing this uniform officially. Little did I know that it would be the last time I was stepping into a 737 cockpit,” Kumar, a pilot with Jet Airways, wrote.

Exactly a year back, Kumar along with 25,000 other employees of Jet Airways were hopeful that the airline’s troubles with a debt of over Rs 14,000 crore would be over once the founder Naresh Goyal was asked to exit the company. The airline was taken over by the lenders led by the State Bank of India and a global hunt ensued to find a new owner for one of India’s iconic airline brands

However, a year later, all hopes of a revival have eroded. Even though as many as 15 entities had shown interest over the past 12 months, no one has submitted a financial bid so far. The ongoing stress in the global aviation sector due to the travel restrictions imposed to combat Covid-19 has practically wiped out any remaining hopes of finding a new owner.

Finding a New Owner

Before the virus hit the global economy, at least four attempts were made by the lenders. The first attempt was led by SBI which set May 10 ,2019 as the last date for submitting an expression of interest (EoI). But by then the airline had reduced its operations to only five flights. On April 5, Jet Airways’ fuel supplier cut off the company refusing to refuel their planes until they had been paid. To find a solution Jet’s senior management had called for a board meeting on April 17. Late evening, senior management executives were seen walking out of the airline’s headquarters in Mumbai, hanging their heads low, some, even sobbing. A decision was taken to shut down all domestic and international flights with immediate effect. Since no emergency funding was forthcoming, the airline was not be able to pay for fuel or other critical services to keep the operations going.

A consortium of minority shareholders of Jet Airways and four unions – Pilots, Technicians, Cabin Crew and others, made an audacious proposal to convert the debt – both financial and operational creditors – into equity.

Sankaran Raghunathan who was leading the consortium said they had sent a proposal to SBI Caps, which was appointed to evaluate a resolution plan for Jet on April 25, 2019. SBI wanted to wait till May 10, the last date for others to submit their EOI, before entertaining this proposal. “We submitted our proposal by email, however, SBI did not respond to us and invite us into this process,” he added.

But even then things looked positive as the lenders had got feelers from some credible investors including Etihad Airways; the Tata Group; AdiGroup; National Infrastructure and Investment Fund; and private equity firms Indigo Partners and TPG.

But on May 10 all hopes came down crashing when only Etihad submitted a conditional offer. In a statement, Etihad, , which already owned a 24 per cent stake in Jet, said that it cannot be expected to be the sole investor, and that, amongst other requirements, additional investors would need to bring in the bulk of the money required to recapitalize Jet.

“In essence Jet could only be revived if it was reset and rebooted, with fresh capital, management, governance and mindset. However, lenders saw it as a going concern that needed fresh capital alone. The gap in understanding the turnaround of an airline was too wide to bridge.” Sanjay Viswanathan, Chairman, AdiGroup told Businessline.

Dragged to NCLT

Having failed to get a new investor, an insolvency case on behalf of SBI was officially admitted on June 20 against Jet by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code.

On July 20, Ashish Chhauchharia, the Resolution Professional on behalf of Grant Thornton India, invited fresh EoIs from potential bidders to invest in Jet. After extending the deadline three times, by August end, the RP received interest from three entities- Anil Agarwal's Volcan Investments; Russian Fund Treasury RA Partners; and the Panama-based investment firm Avantulo Group. Volcan Investments withdrew from the race the very next day. It said that the EoI submitted was only exploratory in nature. “On further evaluation and considering other priorities, we intend to not pursue this further,” it said. Russian Fund Treasury RA Partners and the Panama-based investment firm Avantulo Group did not meet the qualification norms. Etihad, Hinduja Group and Tata Group did not submit a bid.

“In Jet Airways, we saw an opportunity, as norms allowed an Indian partner. Etihad approached us to partner with them, we categorically told them aviation is not our forte, but we don’t mind looking into it. But, when we looked we saw that several protections and dispensations weren’t there. It did not make sense for us,” Ashok Hinduja said in an interview with an English daily on March 2020.

A New Hope

A new glimmer of hope came when South American conglomerate Synergy Group, which owns stake in Avianca Airlines, showed interest in August. The South American conglomerate informed the insolvency court that they were interested in Jet but needed clarity on Jet's slots and past liabilities of employees.

Synergy’s founder German Efromovich came to India to hold meetings with lenders and the resolution professional. He was also reportedly in talks with two Indian partners -- UK’s Ravi Deol and the Bird Group -- as the foreign direct investment norms do not allow an international company to hold more than 49 per cent stake in the Indian airline. But Synergy did not submit a financial bid on account of a lack of clarity on the slots.

Asish Mohanty, Lead Engineer at Jet Airways since 1996 said, “Jet Airways revival has taken a long time because for an airline, most precious assets are the slots, bilateral rights and routes, which must be protected under the IBC process so that a company’s valuation will not erode and the investors will get value.”

In February this year, Prudent ARC and a consortium of the Russian government-backed Far East Development Fund, in partnership with Enso Group also entered the fray. Prudent ARC went on to sign a Non-Disclosure Agreement with the Resolution Professional as the first formal step to acquire a stake in the debt strapped airline.

According to Amit Kelkar, Lead Aircraft Maintenance Engineer, Jet Airways, the consortium led by Far East had a plan for investing Rs.5000 Crore. “They suddenly started reconsidering their plan after being nudged into investing in Air India instead of Jet, by some officials in the Centre,” said Kelkar. “No investor will invest in an airline without a conducive environment is given by the Government. In a heavily regulated industry, no one will invest in Jet if political will is not exercised by the Government,” he added. Prudent ARC, Synergy Group and the consortium led by Far East Development Fund did not submit a financial bid.

Speaking to BusinessLine, Pradeep Goel (Chairman & Managing Director), Prudent ARC, said “Jet had so many complications on a domestic and international level that due diligence could not be completed in such a short time.”

All is Lost

In March Vishesh Chandiok, CEO, Grant Thornton India, in a tweet apologized to the grounded airline’s employees, “I’m sorry to report but I fear we are very near the end of the road for #JetAirways- the proverbial ‘chicken or egg’ is what killed the airline- my apologies to all the employees in particular that we @GrantThorntonIN couldn’t do better for you.”

At its peak, the airline had 22,000 employees, including 6,000 on contract. According to company sources, the company still has over 4,500 employees on its payroll.

According to the latest creditors’ document on the airline’s website, claims worth over ₹36,090 crore against Jet Airways have been received so far, of which the RP has admitted claims worth around ₹14,640 crore. The lenders have not given up and have mounted a fresh attempt to find a new buyer. NCLT has given lenders time till June 15 to get a new investor.

But the Coronavirus pandemic has come as a fresh blow for Jet Airways. A senior banking source said, “It (Jet) may head for liquidation. Even those who have evinced interest are likely to back out due to the adverse impact of the COVID-19 pandemic on the global aviation industry. ”

Prudent ARC’s Goel said, “While we were in an advanced stage of going forward and formulating our plan, the COVID-19 situation erupted, so we are now waiting and watching the situation. We have to evaluate it before we take any steps further because one wrong move will land us into a huge ditch and crores of losses. It will be a very critical decision,” he said.

(With inputs from K Ram Kumar)

Published on April 15, 2020

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