Lessons from Jet

No Promoter can be treated bigger than the company

As the last flight of what once was the second largest private airline in India landed in Mumbai on Wednesday , April 17 at 12:30 am. THE pilot announced that “WE hope to fly again soon, when we do, do book with us.This was a poignant moment for the 25-Year old Jet airways. but it was hardly surprising considering that it had only 5 operational flights after starting the year with 119. With 8400 Cr of debt ,and a failure to receive a stopgap loan from the Lenders as agreed on deal in the late march, the Jets wing was not only clipped but was taken away from it.The airline is clearly staring down the barrel.It is not difficult to figure out why the lenders developed a cold feet after announcing on 25 March a resolution that envisaged Stake sale and “priority Funding”.It was simply impossible to extend the funds for simply two reasons-:1 .The Cash flow of the Airline was severely low and 2. The Supreme court struck down the Reserve Bank of India circular dated February 12,2018 on Stressed assets resolution.The Jet airway’s resolution was based on the premise of this circular.Also the Witch hunt by the Investigative agencies must have weighed heavily on the Lenders Minds.Even the request by the airline for a reduced loan of 400 Cr was an unviable option as most of the funds sought were for payment of salaries and dues for lessors.

But this does not absolve the banks of the blame for the mess that Jet finds itself in.They gave a very long rope to Naresh Goyal, the promoter of Jet airlines, even though the Airline was trapped in a vortex, with no end in sight for months.There were many signals of protracted mismanagement earlier before jet defaulted on its repayments late December , 2018.The airline was careening out of control, with continued losses and severe cash crunch, and even the jets auditors raised question on its surviability on august last year.Yet the banks did not try to save the airline by forcing Naresh goyal to bring in strategic Investors.Instead they convinced themselves , that they could convert debt to equity and keep it going even though the past experience of this endeavor has hardly been encouraging.The Banks also refused to take the Insolvency and Bankruptcy code route too, even though it was enacted precisely to handle situations such as what jet found itself in.

What prompted banks to treat Naresh goyal with Kid Gloves for so long is not clear, but it seems that he had names of some powerful fiends in his speed dial list.The fear of annoying the political powers, who will be wary of the nasty optics of large scale job losses and surge in airfare prices might have played a part, but it seems like the Govt. kept itself out of the picture and let the management and bank handle the issue between themselves, however it tried to minimize the disruption by temporarily allocating the parking slot of Jets to other Airlines.At this point of time , it looks like that it will be a miracle for jet to find its wing again.It will be very hard to find an investor , as nothing much of Jet remains except some flying rights, few landing and parking rights, eroding talent base and shrinking brand value.The lesson that we all can learn from this jet saga is that no promoter should be treated bigger than the Organisation.