Jet after Goyal

It took some time for the inevitable to happen. With most of Jet Airways’ aircraft being grounded and the crisis at the debt-ridden airline worsening by the day, founder Naresh Goyal and his wife Anita Goyal were finally forced by lenders to quit the company’s board. This key development improves the chances of Jet’s survival, given that Goyal’s control over the airline was a major sticking point with many potential investors. Lenders will now have majority control of the airline, and the equity stake of all shareholders, including Naresh Goyal and Etihad Airways, will be diluted significantly. But the road ahead for the airline and for its lenders is anything but smooth. Lenders, led by SBI, have made the difficult but possibly more pragmatic choice of taking majority control over the airline rather than drag it through the Insolvency and Bankruptcy Code (IBC). The latter could have meant long delays and low recoveries. But now, the big challenge for lenders will be to find an investor who will buy their stake in Jet Airways and make good their loans, including the ₹1,500 crore emergency funding being provided to the airline. They expect to complete the bidding process in the coming quarter. A quick closure is critical since banks are hardly equipped to run airlines, especially in a market as challenging and cut-throat as India’s with its operational challenges, high costs and lack of pricing power due to huge capacity infusions. Potential investors can be expected to drive a hard bargain, given the dire straits Jet is in, and lenders may have to take big haircuts on their loans. Even so, it might be an acceptable exit.

Goyal’s attempts over the past few months to rope in domestic investors such as the Tatas and some foreign investors, including global airlines, had come to naught. The changed circumstances, though, offer some hope to lenders. Investors and airlines could see potential and synergies in Jet’s formidable domestic and international network and in India’s high-growth aviation sector. Many would be eyeing a controlling stake. Regulatory support can help here. While regulations allow 100 per cent foreign investment in domestic carriers, the share of foreign airlines cannot exceed 49 per cent. There is little logic in such protectionism. Easing rules to allow foreign airlines to acquire controlling stake in domestic carriers can possibly help attract more and deep-pocketed bidders, resulting in better recovery for Jet’s lenders.

The Centre can also help address structural issues that are dragging down Indian aviation — such as congestion in major airports, high airport costs, high taxes on aviation turbine fuel, and the 20-aircraft rule to fly international. The Centre, and regulator DGCA, should focus on ensuring that passenger interests are protected when airline schedules collapse. For example, airlines could be made to pay into a passenger protection fund which can be used to compensate passengers who have purchased advance tickets in good faith.

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