The Scammy Jet Airways Revival

This resolution plan of Jet Airways and so-called repayment of dues, by a bidder with questionable antecedents, is dubious and lacks transparency.

The collapse of Jet Airways, once India’s largest airline, was evident by February 2019. By then it was loaded with an unserviceable debt of about Rs. 15000 crores, of which it owed Rs. 9000 cr. to SBI, with an exposure of over Rs. 2000 crores and the rest owed to aircraft lessors, vendors, employees and creditors. In 2019, February and March were election season, and the government could not have politically afforded the headlines of the closure of a national airline, with 22000 direct jobs at stake. Thus despite the clear writing on the wall, of the closure of the airline, the banks led by the then SBI chairman, put up a facade that efforts were being made to revive the airline and that it would be revived, with a number of investors keen to acquire the beleaguered airline.

As part of this plan to show that a revival of Jet Airways was on the cards, the banks in February 2019, appointed EY to conduct a customary forensic audit, to enable banks to provide further funds of Rs. 1500 crores to keep the airline afloat. The EY forensic report had numerous unanswered serious issues, but the banks under SBI’s leadership hurriedly accepted it as satisfactory, to mean that there was no misconduct in the financial management of the airline. It was later that the ED objected to such frivolous acceptance of the report by the banks, saying that as per its investigation, about Rs. 8000 crores had been siphoned out of Jet Airways, through shell companies, bogus bills, illegal overseas payments, money laundering and FEMA violations.

It appears that the SBI chairman, as part of a well-crafted script kept saying that the bankers were very confident that they will get a suitable buyer for the airline and that it will be soon revived. He said that bank loans will be converted into equity and the airline will be sold to an investor. In his press meet on 24.3.2019, the SBI chairman said that, lenders are agreeing to take a 50.5% equity stake in the airline and that bankers will find a buyer for the airline within 2 months. He said that there is enough investor interest to takeover Jet Airways. He remarked that Jet is a great brand with great value and that he is confident that the airline will be successfully revived and he assured that the lenders will put in every possible effort to keep the airline flying. He confidently said that an investor will be on board by May 2019 and that banks will provide additional funds of Rs. 1500 crores to enable Jet to clear pressing payments to vendors, creditors, lessors and employees. He said that Mckinsey & Co. has prepared a turnaround plan and that the meal is ready to be served.

As soon as the elections were over, SBI did a somersault and the entire tone of the conversation changed. Its chairman said on 17.5.2019, that only one conditional bid had been received for the takeover of the airline, which contrasted with his confidence and statements in March 2019 and that since banks do not have the capability to run an airline, they will approach the NCLT/HC to appoint a receiver and see whether the airline can be revived or it needs to be liquidated. The earlier false swagger and confidence were gone and in June 2019 the SBI honcho indicated that with not a single unconditional investor bid received the airline may be liquidated. And a year later, since this well-orchestrated drama began, the SBI chief said in March 2020, that they tried their best, but could not revive Jet Airways.

The much in investor demand airline, as the SBI CEO said in Feb 2019, was now an unwanted orphan and strangely instead of liquidating it and realising $400mn towards its 16 owned planes as was said, it was sold for a pittance to an unheard Jalan-Kalrock group in October 2020, without it being even known as to what is the bid amount and what is its plan to revive the airline.

A few days ago the bidders’ resolution plan was presented to the NCLT. While the compromised bankers/financial lenders were aware of the plan, it has come as a huge shock to the operational creditors. The worst case is of the vendors and creditors who are being paid a mere Rs. 9 crores against their total dues of Rs. 6658 crores. The employees are being paid just Rs. 113 crores as against their total dues of Rs. 1200 crores and blue-collar workers are being given a token sum of Rs. 11,000 per person and the lenders/bankers who were always in the know of things are being paid Rs. 1010 crores as against total dues of Rs. 7454 crores, resulting in a haircut of 86%. And the banker dues, even after the massive haircut are not being paid upfront, but will be paid in instalments over a period of five years and that too not out of the funds being brought in by the bidder, but out of cash flows that are expected to be earned by running the airline over 5 years.

This resolution plan of Jet Airways and so-called repayment of dues, by a bidder with questionable antecedents, is dubious and lacks transparency. We have seen it earlier happen similarly in the case of Kingfisher Airlines and also Reliance Communications, where initially the bankers were supremely confident of getting an investor to revive the company and full recovery of bank dues but later the entity collapsed and went into liquidation. It is happening now in the case of Jet Airways too and we have the following questions for the banks, the NCLT and the Resolution Professional in this case:-

1. Why was the SBI chairman so confident in February 2019, of getting an investor to buy the airline and why did such confidence disappear by June 2019?
2. Why did SBI hurriedly accept the forensic audit report of EY as satisfactory, which the ED rejected thoroughly amidst allegation of money laundering and siphoning of Rs. 8000 cr. by the promoters?
3. Why did the bankers not negotiate the airline takeover by the Hindujas who had shown interest, provided the bankers took a haircut of 85%?
4. Why did the bankers not settle the matter with the Tatas, who had shown interest, minus Naresh Goyal, the dubious promoter?
5. How did the NCLT so quickly approve such a pittance of a bid?
6. Where are the 16 planes worth $ 400mn gone and are not factored in the settlement?
7. Why are the bankers willing to get a mere Rs. 1010 cr. out of total dues of about Rs. 7500 cr. that too out of airline earnings over a period of 5 years?

The lack of transparency deepens further when you realise that the NCLT has refused to provide a copy of the resolution plan to anybody, including to the employee unions and creditors, all of whom have been left high and dry and led down the garden path by the bankers led by SBI.