Putting weeks of speculation to rest, Jet Airways on Monday announced that promoter and chairman Naresh Goyal and wife Anita Goyal will be stepping down from the board. This will mean that the banks will now gain control of the country’s second largest airline, and will have to find a new investor who can bail it out.
The move comes in the backdrop of a huge cash crunch at the full service carrier, which has led to a large part of its fleet grounded due to non payment of dues to lessors.
The airline has also delayed salaries to section of its employees and failed to make interest payments to bond holders recently.
Jet Airways hit turbulent weather last year, as operational expenses rose in the wake of a rise in fuel costs, even as heightened competitive intensity meant air fares remained low. The airline, which Goyal had founded over two decades ago, has reported a loss of Rs 3,208 crore for the nine-months ended December 31, 2018 and had a gross debt of Rs 7,654 crore.
The regulator Directorate General of Civil Aviation had informed last week that Jet Airways was operating with just 41 air craft, which is a third of its original fleet of around 120 planes. Due to this its services have been curtailed drastically.
Goyal held 51 per cent in Jet Airways and Abu Dhabi’s Etihad held 24 per cent. Goyal had sent an SOS to Etihad earlier this month seeking Rs 750 crore in immediate funding. Lenders led by State Bank of India too had held hectic parleys with Etihad’s CEO Tony Douglas. However, the Gulf carrier, which itself reported $1.28 billion loss in 2018, was not too keen on investing more funds into Jet Airways.
With talks reaching a deadlock, Jet’s pilots sent a letter to Prime Minister Narendra Modi last week that the airline was on the verge of collapse. The government too may not have wanted to see a large airline go bust leaving thousands jobless just when the elections were around the corner and had reportedly asked the banks to bail out the airline.
Last month, a bank-led provisional resolution plan (BLPRP) was approved, which can now be put into place, with the exit of Goyal.
The board of Jet Airways on Monday decided that the lenders will be issued 11.4 crore equity shares upon conversion of one rupee of the outstanding debt, which will give lenders a 51 per cent stake in the airline. Goyal’s stake in Jet will come down to 25 per cent, while that of Etihad will fall to 12 per cent.
Naresh Goyal, Anita Goyal and Etihad Airways nominee Kevin Knight would resign as directors of the company and two nominee directors of the lenders will be inducted into the board.
It has been proposed that the lenders will immediately inject up to Rs 1,500 crore into the airline by way of issue of appropriate debt instruments against security of assets and an interim management committee will be constituted to manage and monitor the daily operations and cashflow of Jet Airways.
The lenders will initiate a bidding process to find a new investor, and that process is expected to be completed by June.
SBI chairman Rajnish Kumar has said that expression of interest will be given by April 9 and binding bids will be called for by April 30. The new investor could be a financial investor or an airline, he added.
Rajesh Narain Gupta, managing partner at SNG and Partners says the Jet Airways debt saga has now entered a decisive phase and is moving towards a resolution.
“Naresh Goyal stepping down, ceding control and diluting his 51 per cent stake will help the consortium of banks led by SBI gain controlling stake. As equity partners have failed to come at a resolution, banks have no other option but to pick up the major stake and find a new promoter for the debt-laden airline,” said Gupta.
However, managing an airline will surely test the banks given its beyond their core competence. How successful banks are in that will need to be seen, added Gupta.
Apart from its immediate debt repayments and lease rentals to lessors, the other major challenge that Jet faces is with respect to the 737 Max aircraft. The airline had placed orders with Boeing for 225 of the new generation planes and had secured five of those in the current financial year. However, the planes have been grounded in India and around the world, following two fatal crashes, one involving Indonesia’s Lion Air and other involving Ethiopian Airlines.
Stake sale talks had been held earlier with the Tata Group. Lenders could resume talks with the salt to software conglomerate. Tatas already run a full service airline Vistara in partnership with Singapore Airlines, and a budget airline with Air Asia.
Jet Airways had a strong presence in international traffic to and from India, which could be of interest to potential buyers. Tatas had earlier stated that talks had only been preliminary. Will they be interested again with Goyals now out of the picture needs to be seen.
Shares of Jet Airways have crashed 60 per cent in the last one year. On Monday, they soared 12 per cent on the news of Goyal’s exit.