Jet under bankruptcy peril, Tata likely to revive airline acquisition interest

After all operations of Jet Airways (India) temporarily came to a halt on April 17, 2019 following 25 years of run, the airline is left under the threat of heading to a bankruptcy court.

As the debt-laden airline was unable to secure emergency funding from the consortium of lenders led by State Bank of India (SBI), the operations had to be suspended. Since no emergency funding from the lenders or any other source of funding was forthcoming, it was therefore not possible for Jet to pay for fuel or other critical services to keep the operations going. Consequently, with immediate effect they were compelled to cancel all their domestic and international flights. Over the last several weeks and months they tried every means possible to seek funding, both interim as well as long term funding, to keep the operations going but were left with no choice, Jet Airways said in a statement it issued announcing the halt of operations.

While the lenders had earlier stated about not approaching the National Company Law Tribunal (NCLT), operational creditors like service providers, aircraft lessor, and workers can possibly still take the airline to the bankruptcy tribunal. According to media reports, one of the service providers to Jet shot a notice last week under the Insolvency and Bankruptcy Code of 2016, warning the airline that 'corporate insolvency resolution process' is likely to commence if the airline fails to pay within 10 days. This will further increase the pressure on banks trying to locate a strategic buyer and financial investors for jet.

According to media reports, one of the service providers to Jet shot a notice last week under the Insolvency and Bankruptcy Code of 2016, warning the airline that 'corporate insolvency resolution process' is likely to commence if the airline fails to pay within 10 days. This will further increase the pressure on banks trying to locate a strategic buyer and financial investors for jet.

With Etihad Airways, National Investment & Infrastructure Fund (NIIF), private equity investors TPG Capital and Indigo Partners having put in 'expression of interest', SBI had set 10 May as the deadline for submission of 'binding bids'.

If the bankruptcy process initiates, it will provide Jet with a protection from lenders (taking over Jet's assets for non-payment of dues) for time being but at the cost of further delay in the revival as the process of share sale shall be required to begin all over again under the tribunal's administration and that might take as long as three months to start, experts say. Such a delay can prove severely damaging for the airline and the chances of its restoration may grow negligibly slim. With the employee count going down, reducing fleet and slots at risk, the longer the company's operations stay suspended, the difficult it will be to recover it.

Hence experts find selling of Jet to an investor as more of a viable option. Jet is afflicted with the estimated 8,500 Crore debt and its pilots, lessors, technical staff as well as the ground staff have not been paid for the last three months at least.

Many experts as well as Jet senior employees stressed that the only way to save the airline is to act swiftly before it is too late. According to media reports, Etihad Airways had even requested the lenders of the Jet Airways to take an 80 per cent haircut on their debt to the airline so it could make a bid.

The TATA interest

The Tata group is apparently reviving its interest in acquiring Jet Airways but only if the airline goes to bankruptcy, according to media reports. Last year also in November, the Tatas had taken up preliminary discussions to invest in the now cash-stripped airline. However, the group withdrew from talks after gaining the knowledge that Jet Airways founder, Naresh Goyal wanted to retain control over the airline.

With the eventually degrading financial situation of once India's largest airline, Goyal and his wife had to quit from being the board members of the airlines as well as from the operational responsibilities.

Some analysts suspect that the larger idea of the Tatas could be to unify its existing airlines ventures and hope for the acquisition to boost the group's market share. A combination could be challenging for the rival airline, however with the present situation, nothing can be said as yet.

The future of the airline along with it's over 15,000 employees is dangling on the ropes of uncertainty with the ongoing sale process being run by the lenders.

Some analysts suspect that the larger idea of the Tatas could be to unify its existing airlines ventures and hope for the acquisition to boost the group's market share. A combination could be challenging for the rival airline, however with the present situation, nothing can be said as yet.

As of now, Tata Sons Ltd. Holds a presence in aviation through budget airline AirAsia India Pvt. Ltd and full-service carrier Vistara (a joint venture with Singapore Airlines Ltd.).

Mukesh Ambani-promoted Reliance Industries Ltd might also join Etihad Airways in its bid later even thoug hit had not submitted an Expression of Interest (EoI) to the lenders for acquiring Jet Airways.