On Monday, the man who successfully battled competition to Jet Airways (India) Ltd from foreign airlines—and also took on domestic heavyweights—was forced out as chairman of the company he founded in 1992.
July 2018 was a tough month for Goyal, who had fought and emerged victorious in all his battles, yet.
When the early signs of a crisis surfaced in Jet Airways, Goyal, true to his character, ensured the right message went out, repeatedly assuring employees, shareholders and lenders alike that a fix was at hand. Only a year before, he spurned overtures from multiple suitors, mainly foreign airlines, as he sought a premium almost three times Jet Airways' share price then.
In hindsight, it has now become clear what Goyal was unwilling to give up control—key to prestige in corporate corridors.
In all his negotiations over a stake sale, Goyal insisted on keeping control of Jet Airways—dissuading suitors who were willing to invest precisely for that.
Across conversations with investors, analysts and industry executives, Mint pieced together the story of how Goyal finally lost what he treasured most.
When Jet Airways reported a loss of ₹636.45 crore in the year ended 31 March 2018, it had a gross debt of ₹8,425 crore. At the same time, India’s largest airline IndiGo, run by InterGlobe Aviation Ltd, posted a net profit of ₹2,242.37 crore.
“The writing on the wall was clear," said a senior banker, requesting anonymity.
“The company was over-leveraged and there was no way lenders were extending more credit unless there was fresh equity infusion," the person added.
But Goyal like before was adamant on getting a higher price, said another banker.
“But the problem was, the situation had changed dramatically in a year. Crude surged 43.4% during this period while the rupee weakened 7.2% against the dollar in the same period—leaving almost no room for any further manoeuvring," the person added.
There was no way Goyal was going to get what he wanted. Adding to its woes, Jet Airways’ statutory auditor in August 2018 refused to sign off on its first quarter results, citing differing views over interpretations of some accounting rules.
“The Tata Group was the only interested bidder but its relations with Goyal had been thorny from the early days of private airlines in India. Nevertheless, they were willing to invest provided Goyal was willing to cede control," the second person quoted above said. “But Tatas, suspecting revenue leakage, also made it amply clear that all of Jet’s existing vendor contracts including ground handling had to end," this person added. It also wanted Goyal to exit completely.
Not surprisingly, Goyal, used to handling the smallest of details, found Tata’s conditions unacceptable, and turned to Etihad, which has been Jet Airways’ partner since 2013. However, since its $379 million investment in the Mumbai-based carrier, the UAE airline had curtailed its global aspirations and written off similar investments in at least two other airlines. “There was no love lost between Goyal and Etihad," said a former senior executive at Jet Airways.
Despite its stake of 24%, Etihad never really got around to have any say in Jet Airways. Against its expectations, Jet Airways never really became the feeder airline from India that Etihad hoped it would become for its global operations.
“Like Tata, Etihad too wanted Goyal out, but alongside, also wanted a waiver on the mandatory open offer post equity infusion," the third person said adding, “But the Securities and Exchange Board of India, which felt Etihad should have made an open offer back in 2013 since there was a change in management control in Jet Airways, said there could not be any waiver this time around."
In 2013, the Jet-Etihad deal had won regulatory approval after a revised shareholder agreement decreased Etihad’s presence on the board of Jet Airways, addressing government concerns that the Abu Dhabi carrier appeared to be taking control of the Indian airline. Etihad settled for two seats on the board, which was to have up to 12 members, one less than initially planned.
In fact, as recently as 8 March, Jet and Etihad had almost finalized a deal envisaging a total fund infusion of ₹4,200 crore, including from an unidentified white knight. Also, Goyal and his wife Anita Goyal would have to give up executive powers and board duties.
The draft agreement also proposed to cap the Goyal-led promoter group’s shareholding to 22%, which was to be documented in the shareholders’ agreement and in the articles of association of Jet Airways.
Goyal tried to renegotiate this clause in an 8 March letter to Tony Douglas, CEO of Etihad. In the letter, he asked that the perpetuity requirement of capping promoter shareholding to 22% be dropped.
Etihad wasn’t excited; it decided not to proceed with the deal. Left with few options, Goyal made a last-ditch plea to the government for a potential bailout, said the people cited above.
“But it was too late by then," said the first person cited above. “The government was already grappling with the crisis in IL&FS and was fending off accusations in the Rafale case. Seen as backing Goyal at this juncture would only invite more trouble," the first person said.
Banks were told to find a solution with or without Goyal. They found one.