As per media reports, lenders, led by the State Bank of India, have proposed a turnaround plan for the troubled Jet Airways (India) Ltd. This is named as a $900 million resolution plan, comprising fresh equity infusion and restructuring of $450 million of its loans. State Bank of India Ltd may consider converting its debt into equity.
Analysts have pointed out that these measures are in no way any solution to Jet’s problems, its not even a temporary fix. Restructuring debt invariably leads to ownership transfer – from the present borrower to the lender. Even a deep-pocketed strategic investor will think a thousand times to invest in Jet in its present state to turn it around. At the end of the day, the would-be investor will be wondering whether the effort is of any worth! After all, the Tatas did give up.
The resolution plan will only be helpful if it prepares Jet Airways for an eventual sale. The conversion of debt to equity will just bring some relief on interest costs, although it remains to be seen how much equity dilution that may entail. Then, reduction of the stake and control of existing promoters on the company may be welcomed by any strategic investor. Although the said investor shall remain elusive because the present is a time in the history of aviation when even the best airlines of the world are struggling to survive. In Jet Airways’ case the situation is relatively more hopeless because it is man-made.
Liabilities on Jet.
A look at Jet’s stretched balance sheet: As on 30 September, its net worth had reduced further and its net debt stood at ₹8,052 crore.
Estimated sales figures are dismal, given the reduction in capacity due to reduction in men and machine, which urgently needs to be filled. Jet is simply unable to do so as several other liabilities are already lined up in near future which include :
- Staff salaries- current and arrears
- Lease rentals
- Interest, and above all
- Payments required at the time of accepting Boeing deliveries
Lower fuel prices may only help partially. In March 2018, fuel prices were similar. At that time also, Jet Airways didn’t show any profits.
Low fuel price conditions do not sustain for long since crude oil prices invariably can not be predicted. In any case, Jet Airways and its promoters must have been aware of this factor right from day 1.
It is time now for Jet Airways to consider something other than buying time from the lenders. Jet Airways requires a major structural overhaul. This is the most urgent need of the hour. It must recapitulate its gains and losses during the last 25 years.
Gains of Jet Airways.
Volumes have already been written on Jet’s losses while citing little relief in sight for Jet Airways’ investors in the near future. However, Jet Airways did manage to gain something during the last 25 years which still stands tall amid its ruins.
Though it has lost money, Jet has gained respect in the world of Aviation. It still commands prime time slots at various airports in the world. It has been successful in building up other valuable non-aeronautical assets – an enormous media presence, real estate, to name a few. Thousands of men and women have built their careers, their lives and thousands of other aspirants are in the process. All these when summed up become, what is known as in Corporate jargon, ‘Brand Value’.
The Way Forward.
It is up to the Management to give this Brand Value of Jet its due recognition. If en-cashed successfully, not only ₹8,000, but ₹80,000 cr of debt can be wiped out. It may appear slightly far-fetched, but it can not be denied that the Brand Value attained by Jet in 25 years is something which others can only dream of.
Though it has lost money, Jet Airways has gained enormously in Technical expertise. This is also a part of Jet’s Brand Value. This is indeed the most valuable ‘Intellectual Property (IP)’ of Jet. How to use this property is obviously beyond the scope of this article, but it can be safely mentioned that this property is strong enough which can enable Jet Airways to dictate terms in the world of Aviation.
In short, there is an urgent need for Jet’s Management to look in its mirror and give its Brand its due respect.