Podcast | Pick of the day: Naresh Goyal’s exit from Jet Airways

Finally, the Jet Airways saga seems to be coming to a point of resolution. At least, the first few knots, the most difficult ones, have been unravelled by the resignation of Naresh Goyal from the chairmanship of Jet Airways and the stepping down of Goyal and his wife Anita from the board of directors. This development happened after Monday’s conclusion of a monster board meeting running across the night. And, with it, the biggest problem in the resolution of the impasse was overcome, and something of a crisis in the Indian airline industry was averted. The market immediately responded, with the Jet Airways stock rising over 23 percent in the two days since the decision. The saga of Jet Airways, the exit of Naresh Goyal, and what it means for Jet and Etihad going forward are our topics of discussion on this edition of Story of the Day with me Rakesh Sharma right here on Moneycontrol.

This sorts out the situation at Jet Airways for the time being by setting the stage for the revival of the airline. The stalemate has been broken, and the lenders, headed by State Bank of India, have had their debt turned into equity. While the lenders are looking for the sale of their stake, they have meanwhile okayed the release of Rs 1,500 crore, which should take care of the immediate contingency of getting the staff paid and the planes in the air. Already, of the 119 planes that Jet Airways, only about 40 are in service, the others having been grounded because of non-payment of dues for their leases.

For customers, too, it makes a big difference, since there was the risk of hundreds of flights being cancelled from the beginning of April as a result of the threatened strike by the unpaid pilots of the airline. That strike, if it had gone ahead, had the potential to wreak havoc, with the summer holiday season having just begun. The airfares, which had started up after the partial grounding of Jet Airways airplanes, can now be expected to stabilize in time for the holiday rush.

It is not as if the problem of the Indian skies has been dealt with for good. There is a long road ahead, but at least the beginning has been made. The problem of Air India still remains, as does the question of the continuing viability of commercial air operations in the country. The problems at Air India have never really been in the picture continuously because it is a public enterprise and its losses do not attract much attention. However, it would be good to remember that the government’s attempt to divest its stake in 2018 came a cropper, with both Indigo and the Tatas pulling out in the end.

For Jet Airways, the signs have been visible for quite a few years now. After initially capturing the position of the second largest airline in India after Air India, Jet has, in recent years, had it tough, with budget airlines Indigo and SpiceJet eating away at its share. Even before that, Jet – or rather, Naresh Goyal – made the misstep of buying the embattled Sahara, much against the advice of the rest of the board and the experts within the industry. That move never took off, and eventually Sahara, which had been renamed Jet Lite, was integrated with the JetKonnect brand.

Meanwhile, other troubles had been cropping up, most notably, Goyal’s purported links with the underworld and dubious financial links with Gulf countries. On top of all this, jet, a year after paying Rs 1450 crore for Sahara, takes a decision to trim its cabin crew by 800 members, a move that created a huge ruckus and required Goyal to step in and do immediate damage control.

Meanwhile, in the second half of UPA II, fuel prices had started moving up to record levels, which quickly started pinching the pockets of Jet, not to speak of Air India. The continuing pressure from the aggressive no-frills competitors, Indigo and SpiceJet, made it more difficult. By 2018, fuel prices had more or less stabilized after first bottoming out in 2015-16, but the rupee had steadily been going down. The damage seemed to have been done, and Jet posted losses in excess of Rs 1,000 crore in the first two quarters of the 2018-19 financial year.

Things did not improve from there. In fact, by February 2019, things reached such a pass that Jet kind of brought up the rear in the Indian airline industry, coming in fourth, behind IndoGo, SpiceJet and Air India. Earlier, in December 2018, Jet had for the first time, defaulted on a domestic loan payment. Hence, it became imperative for the lenders to find a resolution with the RBI-mandated 180 days. Jet Airways’ total debt at the moment stands at over $1 billion.

Naresh Goyal and his wife Anita held 51 percent of the airline, and hence had firm control over it. However, Etihad Airways, which had obtained a 24 percent stake in Jet Airways in 2013 for a total of $600 million, had been calling for Goyal to step down; so had Jet’s lenders led by SBI. Goyal’s refusal to comply with the demands had been the main reason the lenders had been unwilling to pump in emergency cash needed to keep the airline running. The pilots’ decision to go on a strike from April appears to be what threatened to bring the situation to an absolute standstill, and which also eventually led to the Goyals stepping aside after 27 years of being in control of the airline they had founded, so that the revival process could begin. The bidding process, which is slated to begin on April 9, will again see, as with Air India, the names of IndiGo and the Tata group. Etihad itself, as well as its competitor, Qatar Airways, are also expected to be interested in the bidding. SBI hopes that the process will be complete by the end of May. That is of course something to be looked forward to.

While the exit of Naresh Goyal obviously has a strain of nostalgia attached to it, it is generally being seen as a good thing, as a new beginning.

There is much more to be done, though. The airline industry, if it is to remain competitive, needs to have structural changes. This requires actions at the governmental level. In a fast-changing scenario, it is also necessary to have a setup that responds quickly. It requires the formation of policy that will give everyone involved a better grip on things, so that adverse situations can be rectified quickly and to the benefit of as many of the stake-holders as possible.

As much brought to the fore by the statements of Vijay Mallya, fugitive businessman and founder of the now-defunct Kingfisher Airlines. In the wake of the Goyal move and the public sector banks’ decision to pump money into Jet Airways, Mallya, from his current outpost in Britain, could naturally not stop himself from a little sarcasm. In a tweet welcoming the development, Mallya agreed with the decision. "Happy to see that PSU Banks have bailed out Jet Airways saving jobs, connectivity and enterprise," he tweeted, at the same time musing, if only this had happened with Kingfisher too…. He said, if only the best course had been followed in an effort to sort out the problems with Kingfisher, things could have worked out for everyone. Mallya also pointed out that repeated offers to pay dues by leveraging his assets hadn’t led to anything. Just to recap, Mallya is now facing extradition to India on charges of fraud and money laundering to the extent of Rs 9,000 crore.

That, again, brings policy into the picture. Within a matter of just a few years, two airlines in more or less similar situations have been dealt with in completely different ways, leading to opposite consequences. Surely, all this says enough for there to be a steady, continuing and meaningful policy that will address the problems facing the airline industry in India. After all, this is also the time when we are talking about expanding aviation in India and taking it to the nooks and corners of the country by opening new airports and reviving defunct ones. The few attempts to revive old ones have borne little fruit, and focused policy can definitely produce only better and more desirable results.

For a country like India, set for sustained growth for years to come, it goes without saying that there is plenty of scope for growth for the transport industry, particularly for airlines, on the back of an increasingly prosperous middle class. It needs political will. It requires better management. It requires practical decision-making. And it all goes without saying.