When Jet stopped flying

When Jet stopped flying in April 2019, it was obvious that there was little hope of the airlines reviving on its own without serious government support. Firstly, the airline companies were under stress as the CASK-RASK spread was narrowing. Secondly, the company was starved for funds and nether the promoter nor the banks had any intention of infusing fresh funds into the company. Thirdly, airlines like Emirates that had expressed interest in Jet, eventually backed out. 

An inordinate delay

It was at this point that the government should have ideally intervened and even syndicated a rescue deal. That was well before COVID and the entire economics of the aviation industry had changed in a few months. If Jet got government support, would it have survived the COVID pandemic? There are no clear answers but it would have had a fighting chance like other airlines which are still around. By delaying resolution then, Jet aircraft got repossessed by lessors while the slowdown caused by COVID-19 resulted in a virtual shift in the undertone of aviation industry. This could have been resolved with alacrity. 

Mockery of resolution

The final Jet Airways resolution plan looks like a mockery of a resolution. The banks knew all along that when push comes to shove, the international lessors will have precedence over Indian secured creditors. That is how global contracts are structured under a global legal jurisdiction. That could have been prevented only if the airline was allowed to function. The day Jet Airways ceased operations, the spate of repossession of its aircraft and airline slots, was going to leave the company with nothing to boot. That is exactly what happened and that is what explains this 5% payout to creditors, since that is about the value left in the company. That was avoidable. 

What are the key takeaways

It is clear that banks are going to write off a fortune in Jet Airways and this was avoidable if the banks and government had intervened on time and structured a rescue package. This happens all over the world and India does not have to worry too much about niceties. The big question is what are the takeaways for the future. This will be a big challenge for non-manufacturing companies where there are no plants and factories to sell. Essar Steel and Bhushan were the low hanging fruits for NCLT. The challenge will be in the intractable service units where assets are fluid and there is just too much focus on intangibles. It is time to have a game plan for the same.