Jet Airways gets into a difficult spot once again

More than three and half years ago in April 2019, Jet Airways had forcibly ceased operations after it ran out of cash. That was a crisis waiting to happen. At that point, major Middle Eastern airlines had promised to infuse funds into Jet Airways but obviously most of them got intimidated when they saw the rather shaky financials of Jet Airways. The airline was almost on the brink and the net worth of the airline was already in the negative. Operational creditors had mounted to the point when the airline would find it tough to even procure fuel. The Middle Eastern airline quietly backed out of the deal as it was too risky.

In a sense, that deal breaking off put an end to any future plans of revival for Jet Airways. By the middle of April 2019, the airline had to stop operations as it just did not have the cash to continue functioning. The bankruptcy of Jet was a major disaster since it owed more than Rs. 18,000 crore to the banks and to the operational creditors. SBI tried to broker a deal, but that had little success. Eventually, the Jalan Kalrock consortium managed to get hold of Jet Airways with a promise to find a solution to the impasse. Now even that deal is in trouble as the Jalan Kalrock consortium and the lending banks are deadlocked over a settlement.

With the Consortium of Creditors (COC) of Jet Airways and the Jalan Kalrock consortium not able to agree on a resolution plan, the entire deal appears to be in trouble. For starters, the COC led by SBI has decided to approach The Civil Aviation Ministry to seek approval for the liquidation of the assets of Jet Airways. They have set a deadline that if there was resolution within a week, there would be no option but to go for sale of assets. Banks are worried that as per the resolution plan proposed by the consortium banks may either end up taking a very large haircut, or may end up getting virtually nothing from the resolution.

The dues are large, in excess of Rs. 18,000 crore, so the banks are obviously a worried lot. A restructuring plan had been approved by the National Company Law Tribunal (NCLT) in June last year and Jet was supposed to resume operations in early 2022 under the new management. However, that could not materialize due to the disagreements between the new owners, a consortium including London-based Kalrock Capital and UAE-based businessman Murari Lal Jalan, and the consortium of creditors led by SBI. Kalrock Jalan has underlined that the resolution plan was binding upon all parties and approved by the court.

An early resolution to this impasse is a must if Jet has to start flying again. The airline industry is based on the principle of maximum churn and usage of seat kilometres. Unless that is done, any financial resolution is not going to work. So, the first priority has to be to get Jet Airways back in action and flying routes. Only then, can it start generating revenues and become a viable proposition, The longer this impasse continues, the lower the chances that Jet Airways can even get back on its feet. But, the immediate concern is that Jet needs cash badly and unless that happens, the airline revival could be in trouble.

Yes, Jet needs a lot of cash; almost Rs. 1,000 crore to begin with to run its operations in full capacity. However, the company has not been able to bring that kind of amount to the table and now needs capital infusion. For now, it has bank guarantees worth Rs. 150 crore and cash on hand of Rs. 20 crore, which his grossly insufficient. However, if the due diligence of the project has already been done by the banks before the deal, it is hard to fathom where the problem is coming from. Clearly, the banks must then be aware of the requirement of funds and it is hard to believe that it was something the banks had not anticipated.

The Kalrock Jalan sources have confirmed that the consortium has already invested Rs. 100 crore in the project so they surely have their skin in the game. With the picture already clear well in advance, the onus is now on the banks to wrap up the case. Hopefully, it should result in the revival of what was once the premier full service airline in India.