EDITORIAL | Jet: Banks must exit quickly

The departure of Naresh Goyal from the Jet Airways board and reduction of his and his partner Etihad Airways’ shareholding to 25% and 12% respectively has prepared the ground for a solution to the crisis at the debt-ridden airline. With many of its planes grounded, operations badly affected and unable to pay employees’ salaries for months, the airline has been facing a very difficult situation. The Goyal family’s control over it was a major obstacle in the way of any other investor making a rescue effort. With the exit of Goyal, the lenders to the airline, led by State Bank of India, will increase their stake to more than 50%. The lenders’ debt will be converted into equity. The banks have also agreed to pump in about Rs 1,500 crore to meet expenses like payment of salary arrears and dues to fuel suppliers, airports, etc.

The recovery is unlikely to be smooth. But there are not many options. The alternative for the lenders would have been to go for the insolvency and bankruptcy process. That involves a lot of delay and at the end of it, the lenders would not gain much. This is because there are not many assets that would give any major gain to the lenders if they are disposed of. It is a classic case of money having been lost almost irrevocably in invisible assets. That is why the lenders are planning to initiate a bidding process for selling shares to a new investor. It is expected that the process will be over by the next quarter. Banks are not familiar with the airline business and so they will not like to manage it for long. Their only interest will be to exit as early as possible with minimum damage.

The lenders will soon invite Expression of Interest from new investors who want to take over the airline. They hope to complete the process in May. But it will be a challenge, though it has been reported that some other airlines may be interested and even Naresh Goyal himself may make a bid, with help from unknown sources. The airline is weighed down by a Rs 8,600-crore debt and the new investor may have to immediately bring in Rs 4,500 crore. Money is not the only issue. A new investor, who will most probably be from the same sector, will have to look at issues like synergies and integration. Though the aviation industry in India has seen strong growth in the past many years, it is a very competitive business which has seen the failure of many ventures. That will make investors cautious.