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Can Jet Airways be revived soon?

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Jet Airways (Jet) has been restructured. Naresh Goyal, the founder chairman has resigned. He and his wife have stepped down from the board. Lenders to the beleaguered carrier will now take over the management and board until it finds a new strategic investor. Meanwhile, lenders will provide a further Rs. 1500 crores as loan to stabilize its operations as an ongoing concern.

The move has multiple goals—saving ‘Brand India’ from the taint of a bankruptcy, saving serious inconveniences for passengers, and avoiding the impact of a business collapse on the economy. The other significant goal is that what has happened in the case of Infrastructure Leasing and Financial Services Ltd (IL&FS) does not play out in the case of Jet.

The problem with Jet, as Rajnish Kumar, Chairman, SBI pointed out in an interview to The Economic Times, is that an airline essentially has very few assets that can be sold easily. The only assets are the brand name, a few planes that may be owned (but which may have loans pending against them), some landing slots at airports, and a frequent flyer program whose value may depreciate if the airline does not regain its market share fast. Therefore, whoever takes over Jet will not take over the entire debt. This means banks will take a steep haircut, maybe even as high as 50 per cent.

There are only three categories of buyers for Jet – a foreign airline that wants to control domestic routes to feed international traffic, and is willing to do this with a 49 per cent stake (max. permissible under the current regulations); a domestic business house that is willing to invest in Jet and make it viable through high equity infusions, and an existing domestic airline that is willing to undertake a difficult merger.

Jet plans to restart about 50 flights by end of this month and add 40 grounded planes by end of April. It is currently operating 35 aircraft and may take this number to 75 by April-end, if it is able to persuade the lessors to allow them to fly the planes again. This would be about 75% of their capacity, since Jet had a fleet of 119 aircraft before lessors started taking back the aircraft but government officials say that 103 of them were operational.

Its senior officials, including CEO Vinay Dube and CFO Amit Agarwal, attended the meeting called by the aviation secretary on Tuesday and shared plans on reviving operations. There are about 15 heads, where the airline has dues and they have to decide on the payment according to priority. However, Airport Authority has no dues against Jet Airways, as they are flying less.

The central government and the lenders hope that with adequate funding and 75% capacity utilization, if achieved by April end, Jet would regain lost value and attract good price minimizing the haircut.

The writer is a longstanding commentator on contemporary issues.

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