The government last week seems to have nudged public sector banks (PSBs) to bail out the bankrupt Jet Airways yet again. Was this a good idea? No, but there was no alternative either.
Jet Airways needed a quick solution to get the planes back in service. Air travel is no longer restricted to the affluent; it is now an important component of public transport. A giant airline which, for a while, was India’s biggest domestic carrier, going belly-up would mean punishing ordinary citizens for the follies of banks and the government. People need to travel for work or pleasure and many had done bookings for the summer holidays months in advance.
Also, in a tightly regulated sector that restricts open competition and limits the number of players, the government has a responsibility to ensure adequate air transport in a fast-growing economy like ours. Also, finding a buyer is always easier when the airline is in operation because its staff, pilots and aircraft are the main assets.
Let’s not forget that the Bharatiya Janata Party (BJP) would also have been affected in a big way during election time. While top leaders may charter flights or heli-drop to their rallies, large teams of party workers have to zip around on commercial flights to arrange their mega-rallies. So, a bailout of this sort wouldn’t have happened without political support. But is this the best that the bankers could have done? Let’s take a look at the deal.
The lenders did well to force Jet Airways to convert a debt of one rupee into 11.4 crore shares giving them a 50.5% stake in the capital; but a lot of other issues remain unclear. Banks will provide fresh funds of Rs1,500 crore to restore some normalcy in the airline’s operations. This is supposed to be against ‘security of assets’; but this is mainly the value of the 50.5% equity that the lenders have extracted. If no buyer materialises in two months, then the share price, which shot up after the bailout, will fizzle out equally fast and lenders will be left with worthless paper and the prospect of liquidation.
A corporate announcement says that the money will be used to clear dues owed to vendors, creditors, lessors, pay salaries to Jet’s 22,000 employees and get more aircraft off the ground again. A committee of experts, along with management consultants and an audit firm, will handle the revival of the airline and, probably, find a buyer.
The official announcement says that founder Naresh Goyal and his wife Anita will step down from the board of directors but omits many important details that were revealed in media interviews by Rajnish Kumar, chairman of the State Bank of India (SBI).
01/04/19 Sucheta Dalal/Wire
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Jet Airways needed a quick solution to get the planes back in service. Air travel is no longer restricted to the affluent; it is now an important component of public transport. A giant airline which, for a while, was India’s biggest domestic carrier, going belly-up would mean punishing ordinary citizens for the follies of banks and the government. People need to travel for work or pleasure and many had done bookings for the summer holidays months in advance.
Also, in a tightly regulated sector that restricts open competition and limits the number of players, the government has a responsibility to ensure adequate air transport in a fast-growing economy like ours. Also, finding a buyer is always easier when the airline is in operation because its staff, pilots and aircraft are the main assets.
Let’s not forget that the Bharatiya Janata Party (BJP) would also have been affected in a big way during election time. While top leaders may charter flights or heli-drop to their rallies, large teams of party workers have to zip around on commercial flights to arrange their mega-rallies. So, a bailout of this sort wouldn’t have happened without political support. But is this the best that the bankers could have done? Let’s take a look at the deal.
The lenders did well to force Jet Airways to convert a debt of one rupee into 11.4 crore shares giving them a 50.5% stake in the capital; but a lot of other issues remain unclear. Banks will provide fresh funds of Rs1,500 crore to restore some normalcy in the airline’s operations. This is supposed to be against ‘security of assets’; but this is mainly the value of the 50.5% equity that the lenders have extracted. If no buyer materialises in two months, then the share price, which shot up after the bailout, will fizzle out equally fast and lenders will be left with worthless paper and the prospect of liquidation.
A corporate announcement says that the money will be used to clear dues owed to vendors, creditors, lessors, pay salaries to Jet’s 22,000 employees and get more aircraft off the ground again. A committee of experts, along with management consultants and an audit firm, will handle the revival of the airline and, probably, find a buyer.
The official announcement says that founder Naresh Goyal and his wife Anita will step down from the board of directors but omits many important details that were revealed in media interviews by Rajnish Kumar, chairman of the State Bank of India (SBI).
01/04/19 Sucheta Dalal/Wire
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