In today's Finshots, we talk about Jet Airways, a potential revival for the company and what may lie ahead for the beleaguered airline.
The Story
Jet Airways is all set to be rescued. London based asset management firm Kalrock Capital and entrepreneur Murari Lal Jalan are all ready to take control. And if NCLT — the tribunal that’s adjudicating the matter, gives the go-ahead, Jet Airways could be up and running this summer.
But how did we get here?
Well, Jet Airways ran out of money back in 2019. They were forced to ground their planes and their lenders soon took them to bankruptcy court. It was pretty bad. Except, this video. This video was fire. But, outside of that, Jet had a tumultuous time dealing with the whole thing. There were allegations that the owners had siphoned funds. There were suggestions that Jet would find no buyers. And at one point, it seemed as if both the lenders and the company would languish in limbo. However, considering Kalrock capital and Murari Lal Jalan have now made an offer to take over the beleaguered company, perhaps it makes sense to look at the offer itself.
And here’s how things may pan out.
A successful resolution of the case will see Jalan & Kalrock pick up an 89.79% stake in the airline. Banks will own 9.50%, employees will get a 0.5% stake and the public will control the rest. The previous owners — Naresh Goyal, his family, Etihad Airways and other financial institutions will be wiped out. They get nothing.
And sure, you could suggest that some people are getting bits and pieces here. But these bits and pieces aren’t substantial by any stretch of the imagination. Jet airways owed a lot of money and most people are being forced to take massive haircuts. Not actual haircuts, but the kind where you receive a fraction of what you were originally owed. In this case, banks and other lenders are getting a mere 9%-14% of what they had claimed. Employee groups will get ₹113 crores over a claim of ₹1,200+ crores in the first 180 days and banks will get ₹1,010 crores against a claim of ₹7,454 crores, over five years.
And even if the plan goes through without a hitch, putting Jet Airways on the map won’t be straightforward. Vendors will want their money back. Employees would expect guarantees in salaries and investors will have to draw up new contracts with fuel retailers, aircraft leasing companies, caterers and pretty much anybody that is essential to keep the operations going.
Also, they have to figure out how to access their old slots. Think of slots as permissions extended to the likes of Jet so that they can land and take off at a particular time. And if you are not flying — or you are grounded like Jet— your slot is offered to other airlines who can ferry people. This is what happened in 2019 when Jet shut shop. Some 810 slots belonging to Jet — prime slots in major airports were put on the block. They went to other competitors, albeit "temporarily". Unfortunately, getting them back won’t be an easy task for Jet.
As an ETPrime article notes — “AAI (which oversees the slots meetings) and even airlines are likely to say that Jet’s slots cannot be restored because airlines have already bought “an asset” to use those slots, says another official aware of the think of AAI, requesting anonymity. “An asset” in this case means a plane like the Airbus A320neo or Boeing 737 MAX that costs around ₹300 crores apiece with a lease rental per month of around ₹2.6 crores. They may also argue that many such plans are already manufactured and are ready for delivery from Toulouse in France and Renton in the US."
So even if Jet is plotting a comeback, it's safe to say the company's rivals will have something to say about that. But perhaps, the company's biggest battle will centre on its own comeback strategy. How will Jet rejig its operations to compete against the likes of Indigo at a time when there aren't enough people taking to the air? The answer to this question will perhaps define Jet's future.
Until then…
