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Book excerpt | What really happened at Jet Airways: A banker's perspective

In 'The Custodian of Trust', former SBI chairman Rajnish Kumar shows how bankers sometimes get a ringside view of the most spectacular corporate implosions of our times.

October 24, 2021 / 08:21 PM IST
Naresh Goyal and a leading investment banker hired by Jet Airways reached out to SBI for sanction of additional loans in 2019.

Naresh Goyal and a leading investment banker hired by Jet Airways reached out to SBI for sanction of additional loans in 2019.

The rise of Jet Airways symbolized a remarkable achievement for its promoter, Naresh Goyal, an erstwhile travel agent with an affable personality, who had made it big in the airline business through the sheer dint of his enterprise and hard work. Way back in 2010 or 2011, when I was heading the UK Operations of SBI, I had come across both Vijay Mallya and Naresh Goyal at a social event in London. The two were contrasting personalities—one was rich, flamboyant, and ostentatious while the other was a low-profile businessman, perhaps not highly educated but a very amicable person. In fact, looking at him, one could hardly believe that he was the man instrumental in creating such a successful airline in terms of both adroit branding and high-quality service. I have flown almost all major airlines across the globe, and found Jet to be a perfect match for many of the best international airlines like Emirates, Korean Air of South Korea, Custodian of Trust final copy (1)Lufthansa, and Singapore Airlines. For Indians, Jet offered another unique selling proposition—a familiar and comfortable environment stemming from its typical ‘Indianness’. However, I soon learnt that trouble was brewing in this apparent paradise.

From the archive: Jet Airways employees write to SBI, offer to take over airline

The Beginning of the End for Jet Airways

In the middle of 2019, Naresh Goyal and one of the topmost investment bankers hired by Jet Airways reached out to SBI for sanction of additional loans. The loans were to be secured by the pledge of shares of JP Miles, a frequent flyer programme being offered by the airline but which was managed by a separate company that Jet jointly owned with Etihad Airways. The valuation being talked about for this financial deal was in excess of US$1 billion. While Jet was holding shares worth 49.9 per cent, the remaining 51.1 per cent were held by Etihad. It was obvious that Jet was facing shortage of working capital funds. My first intuitive reaction was that SBI should stay away from Jet’s woes rather than enter into its messy financial waters. My perception seemed justified as subsequently many issues unfolded with regard to the valuation of Jet Privilege Private Limited pertaining to JP Miles, being closely held as also because its valuation would be inextricably linked with the performance of Jet Airways.

Another proposal suggested for resolving the issue was that of financing against six Boeing 777, three Boeing 737 and three Airbus planes owned by Jet. Since SBI had no experience of financing aircraft, this proposal too could not be carried further and the company was advised to explore funding from other banks that had some understanding of financing aircraft. Meanwhile, the financial problems being faced by the company became more and more evident. The investment bankers concerned had probably underestimated the common sense and intelligence of officials at public sector banks, who were assumed to provide assistance without giving much thought to the issue.


From the archive: Jet Airways insolvency: All eyes on banks as they begin voting on the two bids

Word of trouble at Jet Airways soon spread in the public domain. Jet’s problems had started with the acquisition of Sahara Airlines, as a result of which it ended up managing two brands for many years, one of which was a premium full-service carrier while the other was a budget airline that had somehow diluted the original Jet brand. The company was thus falling apart because of its inability to compete with budget airlines, and Indigo had rapidly started capturing the market share. There was huge pressure on the revenue per seat kilometre for Jet whereas its cost per seat kilometre was substantially higher that of other budget airlines. Governance at Jet was reportedly poor amid allegations that the CEO and the management were not being given due authority to run the airline professionally.

From the archive: PMO, FinMin and SBI in a huddle as Jet Airways hits deep air pocket

Mistrust between Partners

Later on, I realized that the bigger problem, which had beset the company, was a complete lack of trust between the two partners, Jet and Etihad. In 2013, Jet had brought in Etihad as a joint venture partner with a 24 per cent stake. Further, it sold a 50.1 per cent stake in Jet Privilege to Etihad, and went on to sell its three slots at Heathrow Airport in London, with the right to buy them back after three years for US$70 million. Etihad had arranged funding from one of the bankers of Etihad, which was to be reportedly secured by pledging shares held by Jet Airways. In hindsight, it appeared, at least to me, that Naresh Goyal had got a raw deal and had effectively mortgaged the interest of Jet Airways, considering that the agreement between Etihad and Jet Airways had opened up a huge and attractive market of Indian flyers for global players like Etihad by an increase in its revenue. As the obvious mistrust between the two partners became public knowledge, it started becoming evident that one of the major irritants was the non-perfection of security on the shares of Jet Airways. Etihad had guaranteed its repayment. Under the rules, foreigners are not allowed to hold more than a 49 per cent share in an airline, and it was not clear if this rule applied to the Jet Privilege wherein Etihad had a 50.1 per cent stake. Since no clarification on the issue came from the MoCA, Etihad started believing that Naresh Goyal was using his influence with MoCA to prevent it from issuing the clarification.

Tony Douglas, the CEO of Etihad, flew down to Mumbai in October 2018, after Naresh Goyal had met me. The visit by Douglas underscored the seriousness of the situation. Jet was fast running out of cash and hurtling towards an imminent shutdown unless a major infusion of cash happened. Tony wanted SBI to invest in Jet Privilege, against security of Jet’s shareholding in Jet Privilege, following which Etihad was willing to take over the operations without any financial commitment in case of an emergency.

Excerpted from "The Jet Airways Conundrum" in The Custodian of Trust by Rajnish Kumar, with permission from Penguin Random House India.

Read more: SBI board wanted letter of support from govt before approving Jet Airways resolution plan: Rajnish Kumar
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