Instead of getting emotional about Jet Airways’ nosedive, bankers could have invoked IBC and avoided the value erosion that they now stare at. (AFP)
Instead of getting emotional about Jet Airways’ nosedive, bankers could have invoked IBC and avoided the value erosion that they now stare at. (AFP)

Jet Airways crisis, and the perils of deboarding without the IBC parachute

  • Bankers dragged their feet on a Jet Airways resolution plan and refused emergency funding on fears of scrutiny later on
  • Bankers could have invoked IBC on Jet Airways at least four months ago and avoided the value erosion that they now stare at

Mumbai: Ever heard the on-flight protocol for times of emergency landing? Perhaps bankers didn’t pay attention to it in the case of Jet Airways (India) Ltd.

While Jet Airways’ troubles began surfacing as early as June last year when the firm postponed its quarterly results announcement, bankers acknowledged the decay only after the airline defaulted on its loans for the first time in January. This is despite Reserve Bank of India (RBI) asking banks to red flag potential stress on their books.

Jet Airways’ nosedive took bankers by surprise somewhat and the scramble for a resolution plan began. But bankers dragged their feet on this and refused emergency funding on fears that they will come under the glare of investigative agencies later on.

It has taken four months for bankers to begin the bidding process, too long for Jet Airways to stay afloat.

In the meantime, RBI’s circular that mandated bankers to put in place a resolution plan was quashed by the Supreme Court. That just made it easy for bankers to extend and pretend.

It is no wonder that the parachute that bankers used was faulty. All they had to do was refer Jet Airways to insolvency courts in the first instance.

The argument that bankers had made against doing so is that a services company has no assets through which recovery is possible.

Why make 50% provisioning against a whopping 9,000 crore overdue of Jet Airways when you know that insolvency would mean a fire sale?

The fallacy in that argument is that Jet Airways has little value left even now.

The real benefit of the Insolvency and Bankruptcy Code (IBC) process is that it would have put a timeline on every step, from the appointment of a resolution professional to the framing of a resolution plan. “IBC compels creditors to negotiate rationally in the shadow of a deadline for liquidation," said Bhargavi Zaveri, senior researcher at think tank Indira Gandhi Institute of Development Research.

Besides, finding a bidder for Jet Airways—as lenders hope—is also something that can happen under the IBC framework. It’s incorrect to state that the process of finding bidders is best done outside of IBC.

The irony of it all is that Jet Airways is likely to find itself in insolvency proceedings now. The Economic Times reports that one of the operational creditors of the airline has threatened to drag it to bankruptcy courts.

Instead of getting emotional about Jet Airways’ nosedive, bankers could have invoked IBC and avoided the value erosion that they now stare at.

Close