Jet Airways bailout. Who pays the price?

The government last week seems to have nudged public sector banks (PSBs) to bail out the bankrupt Jet Airways. Was this a good idea? No, but there was no alternative either. Banks will provide fresh funds of Rs.1,500 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 materializes 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. 

• The founder Naresh Goyal and his wife Anita Goyal will step down from the board of directors. Mr Goyal sends out an emotional farewell letter in which he says, “No sacrifice is too big for me to safeguard the interest of Jet Airways…”
• Mr Goyal still holds 25.5% of the equity. The stake of Etihad Airways halves to 12%. 
• Jet Air says that the money will be used to clear dues owed to vendors, creditors, lessors, pay salaries to 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. 
• Jet Air had two former civil aviation secretaries on its board but couldn’t come up with a plan to stay afloat.
• Jet Air has 22,000 employees.
• Jet Air owes Rs.8,000 crore to banks. The biggest mystery is: Why isn’t anyone holding him responsible for repaying the massive Rs.8,000 crore that the airline owes banks?
• Naresh Goyal’s business dealings are far more controversial than those of Vijay Mallya. But he was sensible enough to maintain a low profile and adopt a humble demeanor.
• Jet  was allowed to fly abroad; got the choicest destinations; was allowed to buy Sahara Airlines to retain market leadership (for a short while) and also wangle a great deal for Etihad Airways, to persuade it to come in as a strategic partner.
• This is hugely ironical when you consider that Vijay Mallya, whose Kingfisher Airlines owes Rs.9,000 crore (with interest) to lenders is having all his assets liquidated and faces untold humiliation. Is the difference in treatment explained by the fact that Mallya chose to run away to the UK when it seemed likely that he would be arrested?
• Why didn’t the lenders demand a board position earlier? 

Rajnish Kumar, SBI chairman has led the restructuring effort and even put his reputation on the line. He told a journalist, “If my transaction is successful, after May 31, I will write a book on it.” If he succeeds, he certainly deserves every accolade; but what if his gamble fails and the airline ends up in a bigger mess, like Air India? Will he be held accountable or will he be allowed to shrug it off and put the airline into liquidation? Remember, SBI has made a virtue of ripping off small account-holders who do not have the resources to maintain a minimum monthly balance and collecting thousands of crores from them.

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Common sense tells us that recapitalisation must be done by owners themselves not lenders. Banks are not supposed to invest any amount of money without 'due diligence' and without 'adequate securities'. It is not bank's job to bailout a privately held company facing financial crisis mainly due to mismanagement of funds by management. In all probability this Jet Air will go into liquidation sooner or later. Then who will be held responsible for doling out this Rs.1,500 crores of depositors money? Also why lenders with exposure of Rs.8,000 crores have no member on Jet Air board is unclear. Unless investigated it is likely to be a scam supported by powerful people. It is likely that Naresh Goyal who killed Jet Air by siphoning off money has been allowed to exit by lending banks & central government without facing inquiry or trial is a big favour. Why same courtesy was not extended to Vijay Mallya & Kingfisher Airlines few years ago in an identical situation?