Saturday, August 11, 2018

Is Jet Airways, India's second largest airline, already insolvent?

The question is: Is India's second largest airline still solvent at all? Or, is it already bankrupt?
"No," says Jet Airways emphatically in an email response to this direct question.
"The Management informed the Audit committee that they needed more time to finalise the Accounts, the Audit committee on their request agreed to accord them further time to finalise the accounts and directed that the finalised accounts be placed before the Audit Committee thereafter. At the Board Meeting, the Chairman of the Audit Committee informed the members of the Board that the management required further time to finalise the accounts, and that the Accounts once finalised would be approved by the Audit Committee and then placed before the Board. The members of the Board agreed with this [sic]," says the Jet response.
"Jet Airways is a flying NPA," says whistleblower Arvind Gupta of ICICI Bank/Chanda Kochhar fame. Gupta has written to the government, including finance minister Arun Jaitley, twice in 2016 and 2017 asking for an investigation against Jet and promoter Naresh Goyal for alleged irregularities. "It has negative net worth. It would have been bankrupt three years ago," alleges Gupta.
'Bankruptcy' is essentially the court's stamp of approval on 'insolvency'. An entity or an individual is insolvent when what it owes is more than what it owns, for example, when its liabilities are more than its assets. Or, when it's unable to pay debts when they are due. On the latter: "Jet Airways is absolutely current on all of its debt obligations. The airline has not defaulted in payment of any interest or principal to banks," says the Jet Airways response.
But on the former parameter, the airline was in the negative in 2017-18 with total liabilities of Rs 19,743 crore against total assets of Rs 12,501 crore. Under such circumstances, free cash flow from operations is the only lifeline which allows the company to continue paying off interest and principal on debt-preventing insolvency. Jet's Rs 321 crore free cash flows have, however, only taken a turn for the worse in the quarter ended June 30, 2018.
11/08/18 Rajeev Dubey/Business Today

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