Jet Airways’ Lenders Leave Door Open For Naresh Goyal’s Return

The chairman of State Bank of India made an interesting comment in an interview with BloombergQuint on Monday, minutes after news broke that the Goyals were leaving Jet Airways Ltd. and the airline’s lenders were looking for a new investor via a competitive bidding process.

When asked whether Etihad wanted to remain an investor in Jet, or go, Rajnish Kumar said “It is their choice. Even for Naresh Goyal, it is his choice and his capability to bring in funds. Doors are open for everyone...”.

It was an odd thing to say for a lender that had just succeeded in evicting Naresh Goyal and his wife Anita from the board of Jet Airways.

The Goyals are the promoters of Jet, at one time India’s largest private sector airline, now third-largest. Also, most indebted. Their failure to run the airline profitably, and an over Rs 8,500 crore pile of debt is what prompted their eventual departure from the 25-year old airline. Evidently, the lenders were convinced that no new investor would consider putting money to work at Jet if the Goyals stayed on. That's a damning indictment of, at best their mismanagement, at worst their lack of bonafide intent.

And yet within minutes of having announced this decision, the SBI chairman was leaving the door open for Goyal’s return?

Goyal The Survivor

Jet started as an air taxi operator in 1993 and a full fledged airline in 1995. All the other airlines born in that decade died. There are a few survivors from the next decade but Goyal and Jet have stood the longest.

And fought the hardest.

1991-2000
Air Sahara: 1991-2006
Damania Airways: 1993-1997
Bharat Airways: 1995-1999
East - West Airlines: 1992-1995
Modiluft: 1994-1996
NEPC Airlines: 1993-1997
Jet Airways: 1993...

2000-2010
Simplifly Deccan: 2003-2008
Air India Express: 2005...
Kingfisher: 2005-2013
Paramount Airways: 2005-2010
Go Air: 2005...
SpiceJet: 2005...revived...
Indigo: 2006...

2010-2019
Air Asia: 2014...
Vistara: 2015...

Policy Luck

Goyal was a non-resident Indian when he founded Jet. The airline was owned by Tail Winds, an Isle of Man company in which Goyal owned 60 percent, and Gulf Air and Kuwait Airways owned 20 percent each.

At the time, foreign direct investment of up to 40 percent was permitted in Indian airline companies. NRIs were allowed to own 100 percent.

Such a liberal foreign investment policy, all the way back in the early-1990s? Goyal was a lucky man. And has held on to the luck. In the 25 years since then, India’s aviation policy has facilitated his interests the most.

When the Tatas wanted to re-enter aviation in the late-’90s, in partnership with Singapore Airlines, aviation policy suddenly changed to disallow investment by foreign airlines. Goyal replaced his two investors and carried on flying. The Tata Group replaced its partner but was still not granted a license.

In December 2004, two months before Jet Airways did an initial public offer, aviation policy underwent a historic change, allowing Indian airlines to fly abroad. But only if they had been in operation for at least five years and had a fleet of 20 aircraft. Of course, Jet was the only one who qualified.

Till the policy was scrapped in 2016 it served to protect Goyal’s interests by denying many of his competitors lucrative overseas routes.

But no policy could protect Goyal from the onslaught of budget carriers.

Air Deccan, Indigo, SpiceJet...they slowly encroached on Goyal’s empire that was so far standing in equal parts on good service and political protection. That’s when Jet made its first big error. The acquisition of Air Sahara in 2007. A poorly-run airline that hung around Jet’s neck like a stone.

By 2013 Jet was in dire need of capital, what with debt of over Rs 11,000 crore. How lucky then for Goyal that just months, literally months, before he announced a deal with Etihad Airways, the government changed aviation policy to permit foreign airlines to invest in Indian carriers. The Jet-Etihad deal was also accompanied by a substantial increase in bilateral flying rights to Abu Dhabi, Etihad’s headquarters.

And though Etihad paid an over 30 percent premium for a 24 percent stake, its participation rights in Jet were severely controlled. Ostensibly by the government or regulators but it worked just fine for Goyal as well.

But eventually even that money ran out. So has Goyal's luck.

The airline that once boasted of being India’s biggest and best carrier, credit to Goyal for that, defaulted on a loan in January 2019. If it weren’t for the Reserve Bank of India’s 2018 circular, Jet might have gotten a longer rope. But the default kicked off a 180-day debt restructuring deadline, after which lenders would have to file insolvency proceedings and make enhanced provisions for the debt.

For a moment it seemed that Etihad would come to the rescue again. But a variety of factors, including its own financial situation and disagreements with Goyal, made Etihad a prospective seller not buyer.

A new investor would have to be found. But who would want to move in with the Goyals?

It took lenders weeks to convince the Goyals to give up their board seats and his chairmanship. Though they still have two nominees on board.

Kumar also stated in another interview that Goyal has signed a binding agreement with lenders to reduce his current 25.5 percent shareholding in the airline to below 10 percent, if a new investor so wants. “Both Etihad and Goyal will have to sell their stakes as desired by the new investor,” Kumar said to Economic Times.

In a hurry to see him go and yet keeping the door open for him to return? Remember, any resolution plan will involve capital infusion but won’t involve paying off all debt at one go. Instead, it will be restructured to a viable level. And Kumar and the lenders have no problem if such a plan is presented by Goyal.

Menaka Doshi is Managing Editor at BloombergQuint.