Thursday, April 11, 2019

India's Jet Airways is too frail to fail

A failing airline is troublesome at the best of times. At India'sJet Airways , salaries are going unpaid and planes have been grounded just as a multi-week national election kicks off. A bankruptcy of the once-top private carrier, especially now, would be politically toxic. The company is essentially too frail to fail.
It is primed for bankruptcy, and unlike when Vijay Mallya's Kingfisher Airlines collapsed in 2012, India now has an insolvency regime. After six months in the courts, there would be little value to recover from what is essentially a services business with limited fixed assets. Jet is not a national champion, however, and airlines around the world fail, and sometimes fold, without dire consequences. Local rivals, including IndiGo and SpiceJet , could fill the travel gaps in India, as they are already starting to do.
Even a well-structured, out-of-court deal for Jet could have serious shortcomings. Lenders, led by State Bank of India , already have some control of the airline through Goyal's pledged shares, and are seeking bids for up to 75 percent of the carrier through a rights issue. Abu Dhabi's Etihad, an existing investor, and U.S. private equity firms TPG and Indigo Capital are keen, according to one person familiar with the situation.
The law requires, however, that substantial ownership and management control remain with an Indian outfit. That is why the state-backed National Infrastructure and Investment Fund, or NIIF, is likely to be part of any winning consortium. Throw in the lenders, who are ready to accept a large discount on their debt in exchange for a slug of equity, and New Delhi could effectively end up with another airline, alongside lumbering Air India. That might look like an unnecessary bailout.
11/04/19 Una Galani/Reuters/Nasdaq