Goyal’s killer grip crashed Jet Airways, CFO News, ETCFO

The promoter of Jet Airways, Naresh Goyal, had held on to his failing airline too long. Time ran out and so did cash, leaving it dependent on lenders to save it. But could Goyal have saved it by leaving the airline sooner?

“Mr goyal shouldn’t have delayed stepping down from board, when he got the first indication from the lenders that they will not put in money unless he goes out. Mr Goyal should have taken a call at that stage,” said Jitender Bhargava, former ED, Air India and Aviation expert.

SBI-led consortium kickstarted the sale process only after Mr. Goyal resigned as a Chairman. It was only that SBI promised to extended an credit line of Rs 1,500 crores. However, with no collateral at hand, the bank stopped it after giving Rs. 300 crores, turning Jet into a distressed asset.

Distress value

Jet has been trying to find a buyer for months now. In the last 24 hours, its 124 planes are grounded with closed operations. Now, it is a distressed asset. It was be bid on a fast-track basis now to make sure it revives.

“The problem now is that the bidding will happen when the airline is grounded. It means bidders will look at the airlines as a distressed asset and the company will not get an appropriate value. Jet should have been operational while the bidding process is on,” says Mr Bhargava.

Lenders have shortlisted four investors-Etihad Airways, National Infrastructure and Investment Fund, Indigo Partners and TPG Capital. The bidding process will end on 10th May. The lenders are looking to raise more than Rs 8,000 crore by selling the 75% stake in the carrier. Goyal has already promised to reduce his stake in the company to make space for a new investor.

The Many Sins of Goyal

Staying too long is not the mistake. The airline has been making many strategic mistakes and taking the wrong call during tough times, in a business which already operates of thin margins.

New players entered the market like Indigo, Spice and the latest challenger is Vistara. In spite of increased competition, Jet continued to make irrational bets and added flights, and increased the number of routes. This made the airline borrow more increasing the cost of operations.

“If you know the market dynamics are not appropriate. If you knew what was happening was not right, what did the management of Jet Airways do? Why didn’t they scale down the operations?” questions Mr. Bhargava.

Crisis No 2

Goyal and Jet management has unfortunately not learnt from their recent mistakes. In 2011-12, the company had sacked its employees and reinstated them only after political pressure. Few airlines, both Indian and international, ever turn profitable due to the business that they are in. Aviation fuel costs affect airlines and fleet costs, along with changing tax regimes make it tough for them to stay flying.

“Not lenders, Jet itself has to be blamed. Jet has flying a model which was difficult,” says an Aviation Analyst.

The airline expanded in spite of cash crunch. Added to that, the numero uno position of the airline was threatened in the last few years as competition increased in the market in the form of Indigo, Spice and the lastest entrant, Vistara.

Jet would be the third airline to go belly up, after Kingfisher Airlines ran into a debt trap, making its owner Vijay Mallya leave country and turn into a defaulter icon, internationally. State-owned Air India flew into difficult times, and is being supported by the government itself. “Market dynamics is a key challenge for airlines in India. It’s a high cost model and very difficult to recover the cost of the fleet,” said Mr. Bhargava.

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