Over and out for Jet Airways as lenders start bankruptcy proceedings

State Bank of India and other lenders will refer the airline to NCLT later this week

A lenders’ consortium, led by State Bank of India (SBI), has given up on its rescue effort after finding no buyer for Jet Airways following months of action-packed search. The consortium on Monday decided to take the Naresh Goyal-founded airline to the insolvency court. 

The one-time premier airline, started more than 25 years ago, was grounded on April 17. Although it was termed temporary grounding because of severe cash crunch, Jet, with a debt of more than Rs 8,000 crore, never flew again, leaving more than 15,000 employees stranded and jobless.

The Jet lenders met for a crucial meeting Monday afternoon and decided to move the National Company Law Tribunal (NCLT) to seek a resolution under the Insolvency and Bankruptcy Code (IBC). 

In a statement, SBI said, “Lenders have decided to seek resolution under IBC since only a conditional bid was received and requirement of the investor for Sebi (Securities and Exchange Board of India) exemptions and resolution of all creditors is possible under IBC.’’ 

The statement added that while the lenders were making efforts to find a resolution for Jet outside the insolvency process, a decision has been taken now to seek a resolution within the IBC process due to investor requirements. In fact, two operational creditors — Shaman Wheels and Gaggar Enterprises — had earlier moved the NCLT. The tribunal has posted the matter for admission on June 20. The Jet lenders’ fresh application is expected to be heard the same day.

Sources interpreting the SBI statement said it was possible that Etihad, the Abu Dhabi airline which partnered Goyal in Jet, might bid under the IBC process to get the grounded carrier at a cheap price. 

Etihad had made a conditional offer to invest in Jet as part of the resolution process that was being stitched by the lenders for long. Etihad was not ready to strike a deal without an open offer exemption from Sebi. 

“Etihad Airways has worked consistently to find a solution which would enable Jet Airways to be reactivated as a viable entity. We will continue to constructively evaluate participation in potential solutions,” a spokesperson of Etihad said.

Ever since the Jet grounding two months ago, the company experienced turbulence of the worst kind including seizure of planes, senior management exits and allocation of its airport slots to other carriers. The airline has been without a functional board as well. On Monday, the last two remaining independent directors Ashok Chawla and Sharad Sharma too stepped down. Goyal was made to step down as the chairman of the board earlier this year as part of the resolution plan.“I feel sad and deeply distressed mainly for our loyal employees who have waited months and were anxiously and hopefully awaiting a positive outcome to the bank-led resolution plan,” Goyal said on Monday. “I can only hope and pray that even now a solution can emerge and Jet can fly and fulfil the needs not only of employees but of air travellers.” 

“It’s over to the legal process from now on,” a Jet official said.A Dutch court had declared Jet Airways bankrupt last month and had seized a Boeing 777 aircraft. According to lawyer Sumant Batra, this could complicate the insolvency process in India and NCLT will have to consider if a resolution professional can be appointed in view of the proceedings in Netherlands. Others however maintain there will be no impact of the Dutch case on the NCLT process except that Indian court may not have a right on the airline's foreign assets. 

In the last leg of the rescue process, only Etihad and the Hinduja Group were holding talks with the lenders, but there was never a closure. Etihad’s bid was non-binding in nature and Hinduja’s offer lacked commitment, a source in the know said. Earlier, even private equity firms were part of the resolution process, but talks failed half-way through. On the whole, lenders failed to find a bidder. 

“A solution had to be found on how to clean up Jet’s debt and its outstanding dues. A substantial investment would have to be made to clear past dues and potential investors did not see a pathway,’’ a senior banker said. Also there were other demands from Etihad like exemption from open offer. ‘’There were also concerns over ongoing probes from the income-tax department and the corporate affairs ministry. Investors wanted to be ring fenced from any possible government action,” the banker pointed out.

A head of financial services at a large consultancy said bankers did make an effort for revival, but they were quite late to start work, almost by a year.

Two senior bankers in public sector banks having exposure to Jet said there were issues about securities being shared for any additional funding support. SBI and Punjab National Bank were not on the same page, one of them said. So, the committed emergency funding of Rs 1,500 crore for revival never fructified, he added.

With inputs from Veena Mani in New Delhi