Can a banker fly an aircraft? Rhetorical as it may sound, the question still demands an answer. More so in the curious case of the loss-making and debt-laden Jet Airways, the latest case of a fairytale story gone awry. In an unprecedented move, a consortium of banks led by the State Bank of India (SBI) has taken over the airlines to manage its day-to-day operations till they find a suitable buyer. Jet has already seen the forced exit of its founder Naresh Goyal, a former ticketing agent who set up the airlines 25 years ago. Industry experts are surprised by SBI’s move. “Such a practice has been adopted in the past for smaller companies—worth Rs 100 or 200 crore—but not for a big company like Jet Airways, whose debt amounts to over Rs 10,000 crore,” says A.K. Ralhan, former chief operating officer of the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).
Out of a total fleet of 119 aircraft, Jet is now operating less than 15 after grounding most planes due to non-payment of dues to lessors. Reports say that the airlines’ collapse could put about 14,500 jobs at risk. And that is why even the government is keen on reviving the company. The argument is that since aviation is a consumer industry, solutions have to be out-of-the-box. But then a horde of companies fall under this category. “If that be the case, the power industry, infrastructure, telecom, all serve consumers. So why were they dealt within the legal framework of the Insolvency and Bankruptcy Code? The SBI-Jet Airways case is unique in Indian corporate history,” says Arvind Gupta, a whistle-blower in the ICICI Bank-Videocon case. Another expert who requested anonymity says: “I think that if the SBI decides to run the company without due diligence, valuation and without fixing the mismanagement, it’s only giving away good money for bad money.”
The question is: how strong is the possibility of SBI bringing the company back on its feet and getting a potential investor? Or is it just a case of throwing good money after bad money? Many have a counter-argument that an airline is worth something only as long as it is operational and flying its aircraft. So, it’s a good decision to keep it running by pumping in more money so that the prospects of any future investor remain alive. “Had the airlines collapsed, the debts would have been virtually lost. I think the SBI has taken a good decision as this is the only way to get back the money,” says Jitender Bhargava, a former executive director of Air India.
The bank’s ability to assemble a team to run Jet Airways professionally in the interim, and simultaneously look for possible investors, is the pertinent issue. However, finding an investor in the aviation sector is not easy. In 2012, Vijay Mallya’s Kingfisher Airlines couldn’t get a buyer despite all efforts. It went bankrupt. Even Air India put its best foot forward to get an investor but failed. The founder chairman of Jet Airways too tried his best to scout for a buyer, but he couldn’t succeed. However, some people familiar with the aviation industry are of the view that the chances of getting a buyer in case of Jet in the current scenario are quite strong. “In the case of Air India, the government was not willing to give away the management control. That’s why they didn’t get any buyer,” says a senior Air India officer.
With the Jet experiment, is it viable to look for a similar exercise in other sectors such as real estate, infrastructure and manufacturing? Venket Rao, an expert of management and regulatory compliances, says that if such an experiment is possible in the aviation sector, it can be done in other sectors too. He says that in the aviation sector, a company’s main assets are the aircraft. So, those can be liquidated into cash and banks will get flying slots, parking slots, air routes and some offices of the company. “Compared to that, a manufacturing company is worthy of an experiment like Jet Airways as it has far more tangible assets than any other aviation company,” says Rao.