In February, when the Jet Airways board announced a bank-led resolution plan, there seemed to be a ray of hope for the beleaguered airline. Right or wrong, the lenders agreed to swap debt for equity to become majority shareholders in the airline. Promoters and equity partner Etihad were expected to subscribe to rights issue to bring in the much-needed fresh equity. Till that time, Etihad looked like a willing partner ready to pump in additional funds provided it got an upper hand; founder Naresh Goyal stepped aside, and regulators relaxed norms to avoid an open offer to other shareholders when it increased stake in the company.
But by March, things took a turn for the worse. More grounded planes, cancelled flights and curtailed operations. Fear of imminent shutdown looms. Jet also declared its inability to service foreign currency borrowings and inability to service domestic debenture payments. And banks, except for one tranche from SBI, are unwilling to lend fresh loans. Etihad, troubled in its home turf, appears to be in no position to spare money for Jet.
Banks are in a bind, damned if they don’t lend a helping hand, condemned if they end up with another Kingfisher-type scenario. As per existing regulations, bankruptcy proceedings should start 180 days from the time of default. So, why can’t banks let it go to IBC? Why should they use more public money to revive Jet Airways? Unlike manufacturing firms, service sector offers very little tangible assets to sell and recover money through an IBC process. Leased planes would be taken back, routes reassigned and employee exodus would leave the company with nothing.
But it sets a bad precedent, and it is not a government’s job to save failing private enterprises. The Centre is under pressure to save jobs, and ahead of polls, no government would want to face job losses of this kind. At best, banks should ensure this is not an unconditional bailout. SBI should also pursue forensic audit and take appropriate action if auditors find any transgressions in the company’s books.