Jet Airways’ lenders need to clarify why they pulled the plug after taking control of the airline

Even three weeks back, it might have been difficult to anticipate the spectacular unravelling of India’s second-biggest airline, Jet Airways. After all, lender-banks had finally managed to oust founder Naresh Goyal from the board and had acquired majority equity control of the beleaguered airline. More importantly, the lenders had agreed to pump in an additional ₹1,500 crore as emergency funding to keep the airline going — until a new investor was found in a bidding process that was to be completed within a quarter. Buoyed by this, Jet’s management had informed the regulator that it would fly 40 more aircraft by the end of April, taking its fleet size to 75 aircraft; at its peak, the airline flew around 120 aircraft. But as it turned out, the road to hell was paved with good intentions. Contrary to their commitment, lenders remained tightfisted with the additional funding that was urgently needed to keep the airline afloat. Little money was released, that too in dribs and drabs. This led to a rapid deterioration in Jet’s already precarious financial situation, with the airline suspending operations on Wednesday.

The backtracking by banks on the additional funding appears inexplicable. One, the political context has not changed — with elections on, the Centre would still have liked to avoid the bad optics of massive job losses and sharp fare hikes resulting from Jet Airways’ exit. Next, after the restructuring, the banks now also own equity (majority stake) in the airline, in addition to debt of ₹8,000 crore or so. In the current impasse, the banks’ debt and equity could suffer heavily. They need to explain the rationale for their decision. There is also the question of the tens of thousands of job losses, as well as the economic losses to vendors, suppliers and lessors. A sudden capacity reduction on this scale also guarantees massive fare hikes just before the holiday season. Reports suggest that the banks were so far divided on providing additional funding, and that they wanted to gauge the extent of investor interest before putting in more money. On the other hand, potential investors would still be watching the banks’ next steps. There are now four potential investors in the fray for Jet Airways, after Naresh Goyal pulled out from his last-minute attempt to make a backdoor re-entry and regain control of the airline.

It was always expected that given Jet Airways’ perilous state, investors would drive hard bargains, and lenders would have to take big haircuts. Investors who have now submitted their expressions of interest (EOI) would almost certainly drive down their bid prices further, with the suspension of operations at the airline. The recent, sharp dip in Jet’s already battered stock price is indicative of this sentiment. While it may seem a case of throwing good money after bad, banks — having come so far — may have been better off keeping the airline afloat by providing it necessary funding. A bird in the sky is worth many on the ground.

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