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The Hidden Losses of Jet Airways

Jet airways

With the over optimistic bankers of Jet Airways, led by SBI  and who have collectively lent it over Rs.8400 crores, unable to get a buyer, the beleaguered airline is now before the NCLT, undergoing insolvency proceedings and awaiting liquidation. An insolvency professional has been appointed to take charge of the grounded airline, which entails taking custody of its assets and also receiving creditor claims. Interestingly, while as per its latest audited financial statements, its total liabilities to bankers, vendors, employees, government etc. are Rs.19743 crores, the liquidation professional has so far received creditor claims of about Rs.30000 crores and they continue to mount. The insolvency professional has accepted/admitted claims of Rs.8462 cr. so far, the balance are being verified with the books of account of the airline. But if the audited financial statements have recorded and certified liabilities of Rs.19743 crores only, then where did the others over and above it come from. And if these liabilities of Rs.30000 crores and counting are genuine, then why did they go unrecorded and unreported and how and why did the auditors of Jet Airways certify these bogus financial statements as true and fair, year after year.

 

It is apparent that the airline has hidden its actual losses year after year because hidden liabilities mean hidden losses of an entity. As to how were these liabilities hidden by the airline, to us, the answer lies in its huge contingent liabilities of almost Rs.60000 crores as per its last available audited financial statements. The company must have received genuine claims towards liabilities, which it refused to record in its books and casually reported them as contingent in nature, with the statutory auditors, which incidentally include a Big Four audit firm, not objecting to this dubious accounting.

 

No wonder the SFIO, the ED and the ITD are all investigating the affairs of this grounded airline and Naresh Goyal and his wife have not been permitted to fly out and have been called for questioning. The SFIO in particular got into action, after a  probe by the MCA into the books of account of Jet Airways revealed large scale malpractices, financial mismanagement, siphoning and diversion of funds, shady related party transactions, and other bogus/suspicious transactions, not in the interests of the airline and its stakeholders. While the SFIO seeks to interrogate the promoters of Jet Airways, it is also doing so, in respect of the bankers to the airline, whose conduct too is questionable. The lead banker SBI had conducted a forensic audit of the airline and the forensic report of EY was received in March 2019. The report had incriminating findings related to non recognition of liabilities, related party transactions and bogus bills and yet the bankers in their meeting held on 21st April, 2019  treated the matter as closed, having shockingly found the responses of the Jet Airways to be more than adequate. SFIO is said to have summoned the banks to question as to how were the responses to the forensic audit report found to be adequate and what was the hurry of the bankers to treat the matter as closed.

 

The entire Jet Airways story is a scammy and fraudulent one, with an unholy and shady nexus between the promoters, the bankers and the auditors in particular. And here are our questions to them.

 

  1. Jet Airways has consistently incurred losses and as we now see, has also hidden the magnitude thereof. Its networth has been negative since 2012, with no promoter contribution. What was the compulsion to the bankers to yet support the airline, with more and more loans, year after year. How did the bankers fudge their own internal appraisal to justify loans to this bankrupt entity.
  2. It was clear to us in February 2019 itself, that it is the end of the road for Jet Airways, yet the bankers fooled the public by confidently claiming that they will get a buyer for the bankrupt airline by May 2019 such that there will be a new management in place, what was the compulsion of the bankers led by SBI to put such a bogus claim?
  3. Why did the bankers not investigate the huge contingent liabilities of the airline, exceeding Rs.50000 crores, part of which are clearly actual liabilities of the airline, hidden as contingent?
  4. What was the reason that the bankers refrained from taking any action against the airline and its promoter, right up to the end, including hurriedly closing the incriminating forensic audit report, in their meeting held on 23.4.2019?
  5. Why did the banker not object to the large scale related party transactions of the airline by which hundreds of crores were being siphoned away by its promoters? What was their incentive in not objecting to it?
  6. What was the incentive for the auditors to compromise their integrity and collude to this mega fraud of the airline?

 

The auditors and the management of Jet Airways certified its bogus state of affairs for all these years and now with the reality spilling out in the open, the airlines has informed the bourses of its inability to finalise its audited financial statements for FY 2019. All these partners in crime have had a good time for many years, leading to the closure of the airline, its employees losing their jobs and potential huge losses staring in the face of the vendors, bankers, travel agents and employees too. If the promoter is to be punished, so must be the auditors and the bankers who have together perpetrated this giant scam.

 

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