The story so far: Two years after Jet Airways — at the time India’s second-largest full-service airline — halted operations in 2019 as it ran out of cash, the carrier has a real chance at getting airborne again. The Mumbai Bench of the National Company Law Tribunal (NCLT) this week approved a resolution plan from a consortium comprising UAE-based businessman Murari Lal Jalan and U.K.-based Kalrock Capital, clearing the decks for the airline’s takeover and a potential revival.
What is the resolution plan approved by the NCLT?
Against the claims totalling ₹15,432 crore that the resolution professional had admitted from operational and financial creditors, the Jalan-Kalrock consortium has offered to pay creditors, including banks, ₹1,183 crore over a five-year period.
Of this, the first tranche of ₹280 crore would be paid in cash after 180 days of the new promoters taking ownership of the beleaguered airline. A second instalment of ₹195 crore would follow in 730 days. The balance would be paid through a mix of cash, proceeds generated from the sale of assets and from the cash flows generated by the airline annually.
Banks would also get a 9.5% stake in the airline, while the consortium would hold 89.79%. Employees would get to own 0.5% of the airline’s equity capital, while public shareholding would be at 0.21%.
Based on this offer, the Committee of Creditors, led by the State Bank of India, had voted the consortium as the winning bidder last October. “That the lenders agreed to such a massive clean-up is surprising and it can at best be termed as a face-saver,” said Kapil Kaul, CEO & Director, CAPA Advisory.
Are there any caveats to the proposal?
When Jet Airways halted operations in 2019, the government distributed its airport slots (the time-specific landing and take-off rights at various airports) among various other Indian carriers. At the time, the government had stated that the move was only “temporary” and that the airline’s new owners could get the slots back. However, the government has since reversed its position. It informed the NCLT that the slots could not be returned to the new owner of Jet Airways as other airlines had made investments in acquiring additional planes to bolster capacity and utilise the slots. The Jalan-Kalrock consortium has maintained that the offer to acquire the airline would be meaningless without the coveted time slots.
The NCLT, in its oral ruling on June 22, did not address the issue in detail and just set a 90-day period for the consortium to work with the Ministry of Civil Aviation and the Directorate General of Civil Aviation to resolve the matter and seek various regulatory approvals.
Will it be difficult to get slots?
According to a senior government official privy to discussions between the Jalan-Kalrock consortium and airport operators, acquiring aiport slots will not be much of a hindrance.
“The Airports Authority of India has said that it does not have a problem in allotting new slots,” said the official, who spoke on condition of anonymity. “Delhi airport is willing to give 15 departure and 15 arrival slots and has said that more slots will become available after its fourth runway is ready. Mumbai airport, too, is willing to discuss the matter with the new owners. Availability of airport slots is a non-issue today as airlines are not able to operate flights on all the slots allotted to them because of a dip in travel demand,” the official added.
However, while obtaining a certain number of basic slots may not be a problem, the availability of premium slots, such as early morning departures out of Delhi and Mumbai, which Jet Airways had previously held, could end up being a thorny issue.
What other issues need to be addressed before the airline can take to the skies?
Resolution Professional Ashish Chhawchharia has said the airline could start flying by the end of this year. Before that, it will have to obtain various approvals and certifications, including an air operator’s permit, security clearances for the new owners, airworthiness of planes, permission to import planes, etc. The induction of pilots and their refresher training could take two to three months if the new owners rehire old employees. Similarly, cabin crew and engineers would also have to undergo refresher training.
The consortium will also need to hire a dedicated management team to run the airline and help it negotiate fresh contracts for the supply of a range of flight-related services, including fuel, catering and ground handling.
How viable could Jet Airways be and what is the current aviation industry scenario?
Jet Airways may face big challenges once it resumes operations, given the present state of the sector.
The COVID-19 pandemic has resulted in a drastic fall in passenger demand. The number of domestic travellers shrank to 53 million in FY21 from 140 million in FY20. This forced airlines to ground 50%-70% of their fleet and fly half-empty planes, resulting in massive losses. The country’s largest airline, IndiGo, reported a decline in revenue from flights by almost 60% in financial year 2021.
CAPA has forecast total losses for Indian airlines over two years of the pandemic to be about $8 billion and has estimated that airlines would need almost $5 billion of capital infusion just to survive. In such an environment, a new player would need deep pockets.