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There is finally a buyer for Jet, but the real grind begins now
It now looks like finally there is a buyer for Jet Airways. A combination of Murari Lal Jalan and Kalrock Capital will take over Jet Airways and hopefully get it back on its feet. Of course, there is still the approval of the NCLT that is pending but that should come through if the overall deal is in sync with NCLT rules. But the real grind for Jet Airways has only just about started now.
Written By: Shashank Gupta
Table of contents
Where Jet stands now
It may be recollected that Jet has been grounded since April 2019. The overall staff count has fallen since, but there still are a good number of employees on the rolls. Back in April 2019, when banks refused to extend further funding lines to Jet, the airline had no choice but to wind up operations. In last 18 months, SBI assumed ownership of Jet with a promise to find buyers. However, with chunk of its fleet repossessed by lessors under international rules, it’s not clear what the new buyer will start off with.
Also, there are dues to the tune of Rs.40,000 crore on its books and clearly there will have to be some major haircuts to keep the buyers really interested in Jet. As per claims filed, Jet owes Rs.13,000 crores to banks and another Rs.27,000 crore to employees and operational creditors. If operational creditors get a raw deal, it will be tough to get supplier credit. To add to all the worries, the global airline industry is going through one of its worst phases.
COVID impact on airlines
If there is one sector that is likely to be the worst hit by the pandemic it is the aviation sector. It is estimated that the total losses for the aviation industry due to the pandemic will be Rs.24,000 crore of which nearly Rs.17,000 crore would be incurred by the airlines. One way to look at is that Jet managed to stay out of the pandemic altogether. The truth is that the airline industry globally is going to take a long time to revive and that is not good news for the revival of Jet Airways. At a time when the airline is racked by debt and idle assets, more than efficiency and funds, Jet will also required favorable market conditions to revive. That could be the challenge.
Will the haircut be a Catch-22?
That could be the real Catch-22 for the new owners of Jet. It apparently owes Rs.27,000 crore to employees and to operational creditors. Haircuts are just inevitable, but the question is how much? If the haircut for employee dues is too much, the airline will not be able to attract the best of talent. That is not a good situation in a competitive market like aviation. If haircut for operational creditors is too high, they either stop supply or insist on cash-and-carry. These are not going to be easy choices. In addition, the airline needs to get back its favored slots, its market share as well as its fleet up and running. That could be the big challenge for Jet!