Jet Airways. The name conjures up memories of a professionally managed airline with reliable flight schedules, impeccable, consistent service quality and of gracious hostesses and courteous and efficient staff. Sadly, those images and memories belonged to the days before the airline started its descent, slowly at first and then plunging into a sudden, painful, medically induced coma.
Jet is lying comatose on the doctor's table while employees, investors, and customers are waiting with bated breath and anxiety, hoping and praying, if somehow, by some miracle, they can breathe life back into the airline to make it soar into the skies again. But each day of indecision and delay is making such a hope a remote possibility.
There are good lessons from the Jet story. Entrepreneurs who nurture and build businesses and especially those who go public with investors’ money must surround themselves with a capable management team. They must keep sycophants afar and appoint a good board of directors that are not only professionally competent with wide-ranging experience in diverse fields but professionals who do not hesitate to dispassionately give feedback to the promoter by regularly evaluating the health of the business and fearlessly airing it in order to uphold all the stakeholder’s interests. They must not be the servile types, trying to appease the promoter to be able to continue in their posts. They are specially duty-bound to serve the minority shareholders and the larger interests of the society under the overall directives of the Company's Act.
Entrepreneurs are too emotionally attached to the enterprises they found and nurture, and are liable to make errors of judgement. They must groom leaders from within, with a long-term vision, voluntarily in their own interest and hand over reins well in time so that they make room for growth for others in their company. Along with filial bonds to their offspring, the greed to hold on to their company’s finances and mistaking it for their personal wealth results in a fatal cocktail that intoxicates and kills.
Goyal Killed His Own Child
Promoter Naresh Goyal, going by his erratic ways and actions in the past two-three years, when early signs of Jet’s financial health were clearly discernible, is guilty of killing his own child and destroying the value of other shareholders who put trust in him and more significantly of putting thousands out of job and laying waste equipment and aircrafts scattered across the country.
The independent directors abdicated their responsibilities and mutely watched and allowed the company to self destruct. The same story has played out in almost every similar family-run large listed company that filed for bankruptcy or was declared NPA by the banks who moved bankruptcy courts for resolution.
The remedy is simple. Market regulator Sebi and the corporate affairs ministry without wasting a minute must change the rules. Independent directors must be appointed by minority shareholders and not the promoter.
The Partner’s Sins
Naresh’s equity partner Etihad Airways is equally culpable and guilty of not working within the bounds of the rules and regulations of the country. Etihad should have made a deal with the banks without unreasonable demands outside the pale of banking and Sebi norms and regulations to find a way out of the impasse.
With Naresh out of the way, Etihad could have moved swiftly and taken control of the airline. It was by wide consent a strategically and financially shortsighted and stupid decision by a very sound International Airline to let go of Jet Airways where they were already invested.
Jet was an excellent fit to Etihad’s international operations with access to the inexhaustible growing market from India, which also had the largest Indian migrant population in the Middle East. Etihad’s actions are a classic case of cutting one’s nose to spite one’s face. It beats one’s understanding how they couldn’t put aside their ego and conflict with a petulant promoter who was hell-bent on killing the airline he created, and take over the company by making a deal with the banks once it was known Naresh would exit.
The lessons learnt in similar situations earlier by the banks and most notably by the Kingfisher Airlines’ experience seem to have gone in vain. The government’s new regulations enable banks to convert debt to equity and take over management control. But they dilly-dallied in removing Naresh and did so only when more than 80 percent of his planes were already grounded after many pilots were poached and passenger bookings nosedived due to peak last-minute flight cancellations plunging the airline into a severe cash crunch.
The chairman of State Bank of India, as the lead bank of the consortium of lenders, though late, realising that the promoter and Etihad were playing cat and mouse and misleading the banks, moved with admirable speed and took management control of the airline by removing Naresh and coercing him to step down and cede control unconditionally and allowing banks to bring in new investors.
Banks announced that they had taken over 51 percent of the Jet shares by converting part of the debt into equity and what's more, released a detailed statement they would be injecting Rs 1,500 crore immediately to restore grounded aircraft into operations and would come out with fresh plan to address pressing current liabilities of salaries, lease fees, spares and so forth. The employees, the foreign lessors and passengers especially who had reluctantly initiated action to repossess the aircraft heaved a sigh of relief. It also brought cheer to the public who held Jet stock.
Alas, the joy was short lived. The promised cash infusion did not materialise. The bankers forgot they were now the owners of the airline and to the surprise of everyone continued to behave like lenders. They got bogged down in legalese while their baby was on a ventilator fighting for its life.
In the absence of firm directions from the various ministries as the country was on ' election mode', and bureaucrats in paralysis on such occasions, the consortium of banks should have given authority to the chairman of SBI. The SBI boss came across as the only person who was decisive and prudent in the given circumstances. He needed unreserved support to pump in the promised funds forthwith. He should have been empowered to release more money as and when required on a pro-rata basis in relation to the shareholding in Jet.
They should have authorised him to find ways to inject the money as further debt until technical and legal formalities are completed as the airline and board was under their control. They then should have proceeded to make a bold announcement that Jet will be saved, whatever it takes, and instil confidence in the market and customers.
Hannibal the legendary general, once said to his troops caught in a battlefield with no way to escape — "Find a way. If none exists to make one." When faced with a crisis, the world has always been saved by invention and courage. The banks have now realised that it was much easier to remove Naresh than lead and run the airline and pull it out of a crisis.
Times of crisis need a leader to lead from the front who can take entrepreneurial decisions. There seems to be none in Jet now. There are only committees. And committees will debate and analyse matters to death.
So Jet may continue to be in a coma for some more days unless the banks without worrying about vigilance or haunted by the CBI or looking toward the ministries, muster courage and with a clear conscience, with lightning speed must appoint a leader among them to do whatever is necessary to make Jet fly again. There may be still an odd chance to save the once great airline. Miracles do happen — they happen when one commits oneself to the cause and a higher vision.
The next government has a task cut out to comprehensively reform the aviation sector so that more tombstones are not erected to dying airlines. There are a host of problems from discretionary policies, multiple mindless taxes and cesses and monopoly monster airports and services to the DGCA caught in a time warp, impeding growth by adhering to antiquated policies guiding Indian aviation under Aircraft Act of 1937 when jet engines or helicopters were not invented.
All that for the future. Now world-class that India was proud of, 16,500 jobs and scores of customers must be saved from airline cartels which will soon be taking passengers on a costly ride.
GR Gopinath, popularly known as Captain Gopinath, is the founder of Air Deccan
First Published: Apr 19, 2019 11:57 AM IST
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