Home / BUSINESS / Naresh Goyal quits: First act of gripping drama ends, Jet’s fate now up in the air – Economic Times

Naresh Goyal quits: First act of gripping drama ends, Jet’s fate now up in the air – Economic Times

Naresh Goyal the founder chairman of Jet Airways, India’s oldest private sector airline and his wife Anita Goyal have stepped down from the airline’s board, the airline said Monday. Goyal has also resigned as chairman.

Lenders to Jet have taken over the company’s management and board. The lenders will shortly initiate an auction process to find a new strategic investor for the company.

A person close to the development said lenders will now own slightly more than half of Jet, while Goyal’s shareholding will reduce to half of his earlier holding of 50.1%. The airline’s lenders led by the State Bank of India will further infuse Rs 1,500 crore into the company via debt instruments “against security of its assets”, Jet said in a statement to the Bombay Stock Exchange.

An “interim management committee” led by the lenders has been created to manage the daily operations and cash flow of the beleagured airline, the statement said.

Jet facing the worst financial crisis of its 25 year old existence has defaulted on loan payments and payments to its vendors, delayed salaries, grounded a majority of its planes and cancelled hundreds of flights in the last few months.

Beginning of the endgame: The funding tangle

The writing on the wall had become clear a few days ago when SBI asked Goyal and three fellow director to resign in view of the airline edging closer to the brink after more and more planes began getting grounded every week for lack of funds. SBI, the lead lender of the consortium that extended loans to Jet, also clearly signalled that it would not be picking up Etihad‘s 24% stake.

SBI chief Rajnish Kumar, however, had insisted that forcing the airline out of business was a bad idea. “We believe that it is in everybody’s interest that Jet Airways continues to fly,” he said.

As reported by ET, the MoU on the fund infusion plan required Jet’s lenders to convert debt into 11.4 million shares. The airline had already enhanced its share capital and as a next step, was supposed issue fresh shares via a rights issue. Under the MoU, Etihad was supposed to infuse Rs 1,600-1,900 crore for a 24.9% stake, just below the 25% threshold which necessitates an open offer.

Lenders were to pump in another Rs 1,000 crore for a 29.5% stake. The carrier’s debt worth about Rs 450 crore was to be converted into equity. As per the plan, Goyal — who had already put in Rs 250 crore, would see his holding at about 17.1% and not more than 22%.

The Etihad hardball

Etihad had earlier put a big spanner in Goyal plans by refusing to play ball if the restructuring strategy for Jet was not reworked. The UAE airline said it would not infuse emergency funds of Rs 750 crore if it didn’t find the resolution plan acceptable. Jet’s prospects went from bad to outright bleak after Etihad dug in its heels and said it won’t be part of the fundraising plan drawn up by the consortium. This left Jet’s lenders with practically no option to save the drowning airline.

Under the resolution plan, lenders were to give Rs 750 crore to Jet on an immediate basis, with a comparable amount supposed to be raised by Etihad. Jet’s fate was sealed for all practical purposes when Etihad refused to comply with this condition. According to sources, the lenders too refused to accept Etihad’s condition that it should have the right of first refusal if any of them decides to exit Jet.

Delaying the inevitable

Naresh Goyal had tried every trick in the book to keep from ceding control of the airline he founded 25 years ago. When pressure from creditors reached a crescendo, he had reportedly agreed to step down as chairman, albeit with a big rider attached — that his son Nivaan be allowed to take his place at the helm.

Signs of the coming crisis were evident as early as mid-December last year when Nikos Kardassis, widely hailed as Naresh Goyal’s turnaround man, abruptly left Jet. The Greek-American aviation veteran, whom Goyal had brought in to help him turn Jet around, went on leave but never returned.

A history of troubles

Memories of Kingfisher, the biggest aviation fiasco in India’s history, are still fresh. The airline that had the second largest share in the domestic travel market finally went under in 2012 after years of losses and high debts.

Some years ago, low-cost airline SpiceJet too was about to crash-land for more or less similar reasons as Jet’s. It eventually made a successful comeback mainly owing to the business savvy of its new owner — he managed to recast every single deal that the airline had been beholden to.

What now?

Industry experts are unanimous that Jet’s troubled basically started when its competitors — no-frills carriers SpiceJet and IndiGo — took the pricing war to a whole new level. The two airlines are expected to keep on at their pricing game, which means capital infusion is the only thing that can keep Jet flying. Near-term losses are unavoidable for Jet, and only a sufficient amount of capital will help the airline deal with that blow. A lot is going to depend on what move — more capital infusion or a change of hands — Jet’s lenders go in for next.

Of high interest in aviation circles will also be what path the government chooses to take. Last November, civil aviation minister Suresh Prabhu said that reviving private carriers like Jet is not his mandate, but that of Jet’s management.

In all likelihood, as things stand, the government can’t probably afford to let Jet fly into the sunset with its 23,000 jobs as a fraught election season nears. But here’s the moot point: can it muster the political will to treat Jet differently than it had threatened Kingfisher?

All said and done, the first chapter of the turbulent Jet Airways saga has now come to an end. Will the new chapter be any different? The fate of Jet, as they say, is truly up in the air now.

Here’s what Jet Airways said in a filing to the stock exchange:

  • Two nominees of promoter viz. Mr. Naresh Goyal and Mrs. Anita Goyal, and one nominee of Etihad Airways PJSC to step down from the Board. Additionally, Mr. Naresh Goyal to also cease to be the Chairman of the Company.
  • Immediate Funding support of upto ~ INR 1500 crore by Lenders by way of issue of appropriate debt instrument against security of its assets which will restore normalcy to Company’s level of operations.
  • Resignation by Mr. Naresh Goyal, Mrs. Anita Goyal and Mr. Kevin Knight, as directors of the Company, and induction of 2 (two) nominee directors of Lenders. Additionally, Mr. Naresh Goyal will also cease to be the Chairman of the Company.
  • Bidding process to be initiated by Lenders for sale/issue of shares to new investor(s), the process expected to be completed in June quarter.
  • Constitution of an Interim Management Committee to manage and monitor the daily operations and cash flow of the Company.

Naresh Goyal quits: First act of gripping drama ends, Jet’s fate now up in the air – Economic Times

Check Also

Shiv Sena equates ‘ungrateful’ BJP with Muhammad Ghori’s ‘treachery’ – Times of India

Shiv Sena equates ‘ungrateful’ BJP with Muhammad Ghori’s ‘treachery’ – Times of India

Leave a Reply

Your email address will not be published. Required fields are marked *