Postponed home ministry meeting helped avoid a disastrous merger
NEW DELHI: The Union home ministry’s “failure” to give security clearance to Jet Airways chairman Naresh Goyal on Wednesday offered him the legal fig leaf he needed to opt out of a deal he no longer wanted.
Under the Jet-Sahara agreement, Goyal had to be part of the Sahara board for the buy-out to go through. The ministry has not given any explanation for its sudden decision to defer the meeting at which Goyal was supposed to get the go-ahead to take his place among the Jet-Sahara board of directors.
The meeting was postponed at the last minute though both the Intelligence Bureau and the Research & Analysis Wing gave the necessary clearance.
A home ministry source said pressure came from the top to cancel the meeting. He said it was a deliberate move to help Goyal.
Goyal has run into huge losses estimated by insiders at Rs880 crore, following his decision to acquire Air Sahara.
Interestingly, there was a convergence of interests between the Congress and Sharad Pawar’s NCP on this issue. Home Minister Shivraj Patil and Civil Aviation Minister Praful Patel put aside party differences in Maharashtra to rescue Goyal. The decision of the Congress to play ball with the NCP seems to have been prompted by its antipathy to the Samajwadi Party and anyone associated with it, including, perhaps, Sahara Group chairman Subroto Roy.
Available reports with the government suggest that Goyal bit off more than he could chew with his acquisition of Air Sahara. In the last four months, Jet has bankrolled operational losses for Sahara flights by an estimated Rs280 crore.
Apart from this, Goyal had paid Rs100 crore as non-refundable advance to Sahara at the time of signing the memorandum of understanding. Besides, he put Rs500 crore into an escrow account as working capital. The account was under Sahara’s control and is now locked in litigation with Jet trying to reclaim it.
In addition, there is an escrow account underwritten by ICICI Bank for Rs1,500 crore. This money was to have been released to the Sahara Group once the sale went through.
As things stand, Goyal is staring at red ink of the order of Rs880 crore - the upfront Rs 100 crore, the Rs500 crore working capital, and the Rs280 crore in operational losses. He has no hope of recouping most of this money anytime soon.
The stock markets may have got some wind of the coming troubles on Thursday. On a day when the Sensex rose 236 points, Jet’s shares fell from the day’s high of Rs770 to close at Rs704.35.
The deal soured soon after Jet began operating Sahara flights. First, Jet shares dropped drastically to about half their value. Then, Jet ran into a series of obstacles as it began the process of asset transfer.
Instead of allowing a complete transfer of assets, as Jet had expected, the civil aviation ministry decided to parcel Sahara assets out to various airlines pari passu, or without partiality. In other words, Sahara’s parking bay rights, its turnaround rights, and other infrastructure needed to operate an airline were divided according to each airline’s share of passenger traffic. This happened after other airlines protested against Jet acquiring all of Sahara’s assets.
The third blow came when Jet found it could not use its name on US-bound Sahara flights because of a continuing court dispute in that country.
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