Saving Jet: on Jet Airways crisis

With the airline landing in the laps of banks, the challenge now is to quickly find a buyer

The decision of Naresh Goyal and Anita Goyal, his wife, to step down from the board of Jet Airways and cede control to its lenders has come not a moment too soon. By hanging on to the troubled airline and refusing to let go, Mr. Goyal brought Jet to the brink, imperilling 16,000 direct jobs and ₹6,000 crore of outstanding debt to banks. Even as banks, obviously prodded by the government, stepped in with a rescue plan in February that would give them a controlling stake in the airline through conversion of a part of their dues, Mr. Goyal refused to keep his side of the bargain. In the meanwhile, the airline continued to nosedive with aircraft being repossessed by lessors, pilots threatening to strike work and schedules going for a toss. It is just as well that Mr. Goyal finally saw reason and resigned from the Jet Airways board. This signals the start of a rescue act to save the airline, but whether it succeeds will depend on a host of factors, including the ability of banks to quickly find a buyer to pilot it.Meanwhile, the active role played by banks in devising the rescue plan and also committing fresh funds of ₹1,500 crore has already come under question. The Insolvency and Bankruptcy Code was enacted precisely to handle situations such as what Jet found itself in. In the normal course, the airline would have been dragged to bankruptcy court for a resolution as many other truant borrowers have been in the last two years. But, just ahead of elections, the government obviously did not want a high-profile bankruptcy with thousands of jobs lost and inconvenience to the public through disrupted flight schedules and higher airfares. While this explains why banks were prodded into rescuing Jet, the fact remains that they are ill-suited to run an airline. Besides, there is the risk of setting a precedent for other defaulters to try to stay out of the tentacles of the IBC. Already, fugitive economic offender Vijay Mallya, whose Kingfisher Airlines collapsed, is asking why he was not offered a bailout as Jet has been. That said, the priority of banks now is to exit from Jet as soon as they can with their money intact. That means finding an investor or a strategic buyer to offload their stake quickly. That is not going to be an easy task, but the alternative for the banks — of running the airline themselves — is not a practical option. The banks also have to guard against Mr. Goyal trying to stage a comeback in some manner in the event that the lenders fail to find a buyer. Such an eventuality would be a violation of the spirit of the IBC and also encourage recalcitrant borrowers.