Jet Airways: Naresh Goyal Steps Down, Lenders Extend Lifeline
Naresh Goyal quit as chairman of Jet Airways (India) Ltd., the carrier he founded 25 years ago, paving the way for lenders to take control of the airline crippled by a cash crunch.
Promoters Naresh Goyal and his wife Anita Goyal and one nominee of Etihad Airways PJSC, Kevin Knight, will step down from the board, Jet Airways said in a media statement. Goyal will also cease to be the chairman of the airline.
The board also said:
- Immediate funding support of Rs 1,500 crore by lenders via debt.
- Expect the process to get new investors to be completed by June-end.
- Conversion of Re 1 of lenders’ debt into 11.4 crore equity shares.
- Constitution of an interim management committee at the instructions of the lenders to manage and monitor daily operations and cash flow of the company.
- The board approves induction of two nominees of lenders.
The lenders approved a resolution plan, as per which Jet Airways was supposed to issue 11.4 crore equity shares to them, giving them close to 50 percent stake and reducing Goyal’s stake nearly by half to 25.5 percent.
The resolution of the debt-ridden airline is expected to be done in the next two months, Rajnish Kumar, chairman of State Bank of India Ltd., told BloombergQuint. The priority funding for the daily operations of Rs 1,500 crore should also suffice till then, he said.
Our assessment is two months. And by that time we expect to complete the sale process.Rajnish Kumar, Chairman, SBI
Kumar, however, remains cautious. “I am not giving any guarantee that everything will be positive. I am only giving you my assessment of the situation. But there is a good possibility that a lot of investor interest will come in.”
Lenders would have wanted to exit the asset as quickly as possible but a lot of time was “wasted” in ironing out the differences between the two promoters, he said. “Today’s development ensures that new investors can evaluate the value of the enterprise and they can submit their plans of how will they revive. The process will start immediately. We will be appointing merchant bankers to kickstart the process.”
In fact as I was mentioning that a lot of preparation and ground work has already been done. It is a meal ready to be served. We have to see who wants to eat it and what is their requirement.Rajnish Kumar, Chairman, SBI
Meanwhile competitor SpiceJet’s chairman and managing director Ajay Singh said Jet’s problems highlights the structural issues India’s airline industry faces.
Today is indeed a sad day for Indian aviation. By launching a truly world class airline, Naresh and Anita Goyal made India proud. This is also a wake-up call for Indian policy makers. We urgently need to address structural challenges that make India’s airlines uncompetitive to airlines around the world.Ajay Singh, Chairman and Managing Director, SpiceJet
The full-service airline has been in trouble due to a mounting debt of over Rs 8,500 crore (over $1.2 billion)—with State Bank of India and Punjab National Bank having the highest exposure at nearly Rs 2,000 crore each. It has not only delayed payments to banks, vendors and employees, but has also been forced to ground 54 planes due to non-payment to lessors. The distressed airline has also suspended services on 13 more international routes.
Back in 2013, when the airline was struggling due to mounting losses and high debt, U.A.E.-based carrier Etihad Airways PJSC came to its rescue by paying close to 50 percent premium to the prevailing market price to acquire a 24 percent stake in the Indian airline. The airline had also sold stake in its loyalty programme, while it received a bank guarantee of $150 million from Etihad.
Etihad, meanwhile, has problems of its own. The Gulf carrier, Bloomberg reported, posted a loss of $1.28 billion in 2018, widening its deficit over three years to $4.8 billion. This has forced Etihad to embark on a cost-cutting plan that includes discontinuing select global routes. It bowed out of the resolution plan for Jet Airways last week, BloombergQuint reported citing people in the know.
Still, Jet Airways needs another fund infusion to continue operations due to its inefficient operations.
Jet Airways has a high-cost structure as it’s a full-service carrier. Competition from low-cost carriers forced the airline to charge less, eroding its financials. A rise in crude oil prices, local taxes on jet fuels—which are among the highest in the region—and a weaker rupee only worsened the situation. All of this led to a decline in Jet Airways’ market share more than halving in the past decade to less than 12 percent.
Watch the full interview with SBI Chairman Rajnish Kumar here: