New Delhi: Quick action on the Jet Airways crisis—emergency bank funding of ₹1,500 crore and the exit of chairman Naresh Goyal as part of a bailout plan—is the latest example of the government stepping in to prevent a high-profile corporate collapse.
The move has multiple goals—saving ‘Brand India’ from the taint of a bankruptcy, saving serious inconveniences for passengers, and avoiding the impact of a business collapse on the economy.
The government is keen to ensure that the airline survives in order to prevent any wrong signals going to investors at a time India is projecting itself as a destination for investments and is making serious efforts to improve ease of doing business. The Narendra Modi administration also leveraged its good relations with the United Arab Emirates (UAE) to ensure that its carrier Etihad Airways PJSC remains on board, as far as any revival scheme for Jet Airways is concerned.
Etihad owns 24% in Jet Airways (India) Ltd.
“The idea is that what has happened in the case of Infrastructure Leasing and Financial Services Ltd (IL&FS) does not play out in the case of Jet Airways. All serious efforts are on to ensure that Jet Airways remains afloat as a going concern," a person informed about discussions between Jet’s shareholders and lenders said on the condition of anonymity.
Government intervention takes place in the case of entities which have either systemic importance to the financial sector or have big impact on an industry or the economy in general. It was last seen in the case of IL&FS in October last year, when the government replaced its board of directors and ordered a probe into its failure. The new IL&FS board is now in the process of selling key assets to finance a turnaround. The UPA government in January 2009 did a similar drill when it moved the Company Law Board, the predecessor of National Company Law Tribunal (NCLT), to replace the board of directors of software maker Satyam Computer Services Ltd, which reported a fraud.
Jet Airways’ troubles became public when the carrier had to defer announcement of its first quarter results last August saying certain matters needed closure.
For the first quarter of 2018-19, the company eventually posted net losses of ₹1,323 crore on account of high fuel cost and rupee depreciation, compared to a ₹53.5 crore net profit a year earlier. At the end of the June quarter of FY19, Jet Airways saw its net worth plunge into the negative.
It became clear that the company needed a bailout.
Policymakers usually keep track of such developments, especially when these take place close to national polls. After a meeting with finance minister Arun Jaitley last week, SBI chairman Rajnish Kumar had said that lenders to Jet Airways would make every effort to keep the airline from slipping into bankruptcy. That meeting was also attended by Nripendra Misra, principal secretary to PM Modi, and civil aviation secretary Pradeep Singh Kharola.