HW English
Jet Airways
Business Tit-Bits

JET AIRWAYS NEEDS A NEW PILOT

A change in management, in order to protect the interests of employees, shareholders, creditors and lenders, to prevent further frauds and financial mismanagement and to salvage the organisation, is a rarity in corporate India. It was in the shocking case of Satyam, where we witnessed such a move, where the government acted decisively and very swiftly changed the management. It quickly appointed Deepak Parekh as its new chairman, disbanded the board of directors and handed over the company to the Mahindra group. This swift and successful action, not only saved the company, but also led to the punishment of its auditors, promoter and senior employees, who are in jail. The need is to move fast in a timely manner, if the entity is to be saved. But that depends on the stage when the authorities are made aware of the corporate fraud and mismanagement which is usually carefully hidden, such that a change of management is the only option. In Satyam’s case, it was its promoter Ramalingam Raju who himself confessed his misdeeds, which led to his ouster and imprisonment.

But a promoter confessing his crime in such a manner is a rare event. Take the recent of ILFS. It has been incurring losses consistently since 2012. But its management did not disclose its true financial position, it showed a rosy state of affairs, manipulated its accounts, built up a huge debt, evaded taxes, laundered money into undisclosed subsidiaries and continued borrowing money, under its bogus AAA credit rating and falsely cultivated image of being a government entity, till it could not borrow any more, which finally exposed its rotten truth. And in this criminal misconduct of its dubious management, the auditors and rating agencies colluded and so did its eminent independent directors. Much before the scam exploded in August 2018, its promoter Ravi Parthasarthy, managed to scoot away in June. 2018.

It was upon the payment default of ILFS, which became public knowledge, that authorities and agencies got into action. It was soon clear that ILFS was a case of mega fraud, which led the government to move the NCLT, dismiss its board of directors and appoint a new team under Uday Kotak, to explore resolution of its crisis and revive the organisation, which looks very unlikely. The new management has come in too late. All it may be able to do is to sell its assets and subsidiaries and repay its loans, where even in the best case scenario, it looks like that lenders will get just about 40% of their dues. The government should have acted earlier, but it could not, since due to collusion by the promoters and all others, who collectively hoodwinked the system and perpetrated the fraud it remained hidden, till it could be bank rolled no further.

A similar serious situation is building up in Jet Airways, where an immediate change in management is needed, before it is too late, though its promoter Mr. Narsh Goyal has been resisting it tooth and nail. All the ingredients are already on the surface viz. chronic losses, loan defaults, allegations of accounting manipulation, forensic audit by bankers, alleged siphoning of funds by the promoters, default in salaries and trade payments, credit rating downgraded to default status, and huge charges of financial mismanagement by an insider whistleblower. Jet has defaulted on its bank loan repayment and as per the RBI norms, it has to be resolved within a period of 180 days. All that the consortium of lending banks need to do, is to convert their loans into equity and handover the airline to a new worthy management, before it is too late and it is grounded, not for good.

Related posts

Business Tit-Bits: Those who got away

Akhilesh Bhargava

Financial Mess and Mismanagement

Akhilesh Bhargava

Wrong Doings at Jet Airways

Akhilesh Bhargava