Move on, Mr Goyal

If the government is intent on bailing out Jet Airways, it should seek a full personal guarantee from the promoter

At least two large and significant carriers were either destroyed or at the doorstep of ruin during the reign of UPA I and II: Kingfisher Airlines (KFA) and Air India. In both the cases, the authorities, ministers and government officials are directly responsible for either creating the problems or abetting them.
 
In the case of the national carrier, we can only blame poor management and decision-making, involving none other than the bureaucracy and ministers. In the case of KFA, there was no reason for the airline to continue flying even as long as it did since it was bleeding cash. It was the pressure used by the powers-that-were that various public sector banks and institutions were persuaded to offer loans and lines of credit to the airline long after it made any commercial sense. We have all seen the outcome of those follies: Air India burns cash like a Nasa space shuttle — to use a term I had previously used to describe KFA’s plight — and KFA’s flamboyant and reckless promoter has got away without paying his dues as of now.

 
It, therefore, comes as quite a shock to me that the current government seems to be willfully committing the same error as the previous one and is offering a government subsidy to bail out the struggling Jet Airways. The State Bank of India (SBI) is to offer a fresh loan of $215 million to the carrier. It already has an exposure of roughly the same amount in the airline. Jet Airways in fact defaulted on the payments of the earlier loan to SBI. Yet SBI is to offer a fresh line of credit. Why? Which commercial entity would do so? Can we, for instance, ask Standard Chartered or HSBC to consider Jet’s case?

 

This brings me to the question as to why SBI should venture where no other sane man would. I think the answer is clear: The government is not keen on watching a large company and airline go down at least during its tenure or till this year’s general elections. Besides 16,000-odd lost direct jobs, sinking of a large corporation would have all kinds of other implications for the wider economy. Let me add here that nobody in the aviation industry at present wants to see Jet Airways go down — even rivals are aware that Jet’s demise would lead to repercussions for them as well.

 
The bad news is that the present condition of the airline is far worse than what SpiceJet’s was when the latter was one day away from closure in December 2014. Jet’s total dues are now touching a whopping Rs 23,500 crore. This includes a cash debt of Rs 8,500 crore, letters of credit of Rs 4,000 crore and Rs 11,000 crore is owed in the form of dues to all vendors, lessors, airports and related bodies, TDS not paid and salary arrears, among other things.
 
Moreover, the airline’s promoter Naresh Goyal (NG), a smart operator, is at loggerheads with Etihad — the airline partner that holds 24 per cent in the airline. I remember a top official of the airline telling me soon after the signing of the Etihad deal that Goyal entered with a divorce in mind. His words to me were: “He was planning Etihad’s exit even as he signed the deal with his new partner”.

 
Etihad has flatly refused to bring in any new funds unless Goyal relinquishes control, which he is stubbornly refusing to do. He is willing to reduce his stake to 26 per cent but wants to keenly watch over any new owner’s shoulder.
 
That leaves no option but SBI — or a government subsidy in effect. There’s been some talk of SBI converting some of the loan into equity, which to my mind amounts to some kind of nationalisation of the carrier. But unlike Mallya, Jet’s promoter is a non-resident Indian and has very few assets if any in India. Whatever NG owns — and that is likely to be quite substantial — is in London, Dubai and god knows where else.

 
So here’s my suggestion. A personal guarantee for the full amount that SBI or any government controlled entity lends the airline should be sought from Goyal. If he’s certain he can lead the airline out of its current troubles, he shouldn’t have a problem offering such a guarantee. If he refuses or is unwilling to guarantee the full loan amount, SBI should only agree to a loan provided he steps down with no board presence and a token stake in the airline. His presence in the airline is no longer an asset to it. It’s time he accepts it and moves on.

 
PS: Even as this column went to press, news reports were coming in that Etihad would increase its stake to 49 per cent and Naresh Goyal would step down. The company, however, has not confirmed