Jet Airways Share Price – Thunderclap on the Ground: An Insider’s Perspective on Jet Airways’ Resolution
What happened at Jet?
Before the airline’s problems became public, investment bankers appointed by Goyal landed at SBI, with a offer to borrow additional funds. The plan involved pledging Jet Airway’s stake in Jet Privilege Pvt., A company it only partially owned. Etihad Airways, which owned 24% of Jet Airways, owned 50.1% of Jet Privilege.
Investment bankers valued Jet Privilege at over $ 1 billion, but valuations were questionable as the shares were unlisted and were tightly owned with no secondary market. Kumar didn’t want to get involved.
The plan was then restructured to pledge six Boeing 777s, three Boeing 737s and three Airbuses against the financing requirement. Here too, Kumar said, SBI had no experience in financing aircraft and advised bankers to explore other options.
However, financial problems have built up over the years, due to Jet Airway’s acquisition of much smaller Sahara Airlines in 2007, says Kumar. The acquisition didn’t make much sense as Jet Airways was forced to run a low-cost airline in addition to running its own full-service premium carrier. This sort of diluted the Jet brand, which was already facing competition from smaller rivals.
“The company was therefore collapsing due to its inability to compete with low-cost airlines and IndiGo had quickly started to capture market share,” Kumar explains in his book.
On top of that, governance issues were also mounting, with allegations that the CEO and management of Jet Airways had not been duly empowered to manage the airline professionally. Goyal was still president.
Kumar was a fan of Jet Airways, Goyal and his rags to riches story. But Jet Airways’ resolution process showed it a promoter who “was losing weight and control but still wanted to dictate terms.”
Throughout the resolution process, he said Goyal adamantly remained in the cockpit of Jet Airways, disregarding advice from bankers, stakeholders, potential investors and other sympathizers.
“… for Naresh, Jet Airways was his baby that he had raised since birth, and for him, abandoning a business he had created from scratch was unthinkable,” writes Kumar.
At one point, the Tata Group considered an investment in Jet Airways and was doing due diligence through a team positioned in London. However, like many other plans, this one also fell through due to Goyal’s insistence on retaining the permanent presidency and board seats for his son and another candidate.
For its part, the Etihad Airways team was “just as uncertain and hesitant about handing over control,” Kumar writes.