Will Jet lenders' gamble pay off?

A new chapter in the India's aviation history has begun with lenders owning a controlling stake in India's biggest private airline.

Banks have got Naresh Goyal, the founder-chairman who had run Jet Airways for 28 years, out of the Board with an undertaking that he would cut his stake further to below 10% if the new owner insists, while Etihad has been made to agree that it would exit the venture on requirement.

This has come at the cost of an additional line of debt of Rs 1,500 crore in order to keep the Rs 8,400 crore debt-laden airline afloat.

So are the banks in a sweet spot or is there a strong possibility that Jet Airways would be thrown into the National Company Law Tribunal (NCLT) in the absence of a buyer? Are the lenders betting the right way or will their huge pile of loans go sour?

State Bank of India chairman Rajnish Kumar is confident that Jet Airways will find a new owner within four weeks. "We will open the bids. We expect to generate considerable buyers' interest," he said.       

In a turbulent aviation industry, which has seen big brands like Kingfisher fly out of the skies, there is no definite certainty that a carrier will be immortal. "There is a high risk and this may not be followed by high rewards. As several airline operators have discovered, it is a very topsy-turvy world out there," said an aviation analyst.

To be fair to Kumar, who has spearheaded the resolution plan, lenders had little choice but to unleash a new lifeline to prevent the ailing airline from being grounded. The other option would have been to allow it to the NCLT on a death bed. "If banks take it (Jet Airways) to the NCLT, it could be time consuming and its value would be lost. The airline business is all about branding and goodwill," said Kumar.

For arriving at a common resolution plan, Kumar deserves credit. Goyal is a hard bargainer. On top of that, Etihad Airways and Goyal were at loggerheads. The job would have been easy if Etihad was in good health and was willing to hike its stake from 24%. But with the Abu Dhabi state-owned airline suffering a $1.28 billion loss in 2018, CEO Tony Douglas said it was not going to make additional investments in Jet Airways and was, in fact, keen to sell its stake.

Etihad's changing stance accounted for valuable loss of time and a cash-starved Jet Airways had two-thirds of its planes grounded. Pilots also threatened to stop work from April 1 if the pending salaries were not paid by March 31.

Kumar's initial resolution plan of coming out with a rights issue after conversion of debt into equity was shelved as the shareholders were not going to bring in capital. While the conversion of debt into equity at Re 1 ensured that banks had a 50.1% stake in Jet Airways, a new long-term debt instrument replaced the rights issue.

Cornering Goyal, lenders ensured that he and his wife would have to immediately step down as Board members. Goyal and Etihad had to also agree that they would further sell their stake if need be so that the path of a new investor would be without thorns.

Goyal, 69, went emotional the day he stepped down from the Board and wrote to his staff that, as he "pondered on the past and looked to the future", he realised that "there must come a day when the torch we have carried all this while will need to be passed".

So who will hold the new Jet Airways torch? Could it be the Tata Group, fuelled by Ratan Tata's aviation dreams? Would it be IndiGo or SpiceJet? Will it be Qatar Airways or private equity investors?

Though Kumar has not ruled out any of them, the Tata Group would look like the most obvious contender. The Tatas already have two aviation ventures, with 51% stake each in Vistara and AirAsia India. The market is also talking of the possibility of Singapore Airlines joining in as the minority foreign equity partner while the Tatas hold a controlling stake. This is speculative at this stage, but analysts say the group has a deep-pocket to support such a capital-intensive venture.

SpiceJet has been ruled out for lack of balance-sheet strength while IndiGo seems to be a rank outsider. And as for Qatar Airways, it will require to team up with a local partner to meet the foreign direct investment (FDI) guidelines.

Kumar and his lender group also have left room for Goyal or Etihad to participate in the bidding. While Goyal may still be in the theoretical race and nurse the hope of roping in a new partner, the reality is that it is the end game for the man who deserves to be credited for building an Indian carrier meeting international standards, though against charges of manipulating the government.

So, where did Goyal go wrong? Was the acquisition of Air Sahara a mistake, much like Vijay Mallya's folly of gobbling up Air Deccan? The grand old man of Indian aviation would not agree on any such suggestion. "Looking back, I would not want to change a thing. Not the triumphs, nor the trials and tribulations…" he would write to his staff.