Mid Air Turbulence
Change in Jet Airways ownership a test case for the extended insolvency framework
29.03.2019
The transfer of control in Jet Airways from the airline’s promoter Naresh Goyal to a consortium of lenders led by State Bank of India marks an inflection point in Indian business. The development needs to be seen in the context of two big changes. First, the introduction of a bankruptcy legislation which strengthened the hand of lenders. Two, RBI last year complemented it with a regulation which made it impossible for banks to ignore even a day’s default. It’s the RBI regulation which has been invoked to bring in sweeping changes in Jet’s management.
Lenders have appointed an interim management committee and also roped in management consultancy McKinsey & Co to revive operations. This will be backed up by financial support of Rs 1,500 crore. The resolution plan of the lenders consortium aims to bring in a new investor by end June. Hopefully, the lenders will be able to exit according to the timeline because the current arrangement is at best an interim measure. In the event the effort fails and the loss making airline continues to descend, the next stop will be bankruptcy proceedings. In that case, the loss for lenders and airline stakeholders will be greater.
The Jet resolution effort is critical as it’s a test of a new framework where the combination of a bankruptcy law and RBI’s tighter regulatory framework is meant to change the nature of Indian capitalism. Promoters in this scenario will not be insulated from contractual obligations to lenders. The government can do more to change the situation. Along with the welcome change represented by the bankruptcy framework, more needs to be done to ease doing business. For the aviation sector, government should persuade states to bring petroleum products into GST and thereby rationalise their taxation structure.
Change in Jet Airways ownership a test case for the extended insolvency framework
29.03.2019
The transfer of control in Jet Airways from the airline’s promoter Naresh Goyal to a consortium of lenders led by State Bank of India marks an inflection point in Indian business. The development needs to be seen in the context of two big changes. First, the introduction of a bankruptcy legislation which strengthened the hand of lenders. Two, RBI last year complemented it with a regulation which made it impossible for banks to ignore even a day’s default. It’s the RBI regulation which has been invoked to bring in sweeping changes in Jet’s management.
Lenders have appointed an interim management committee and also roped in management consultancy McKinsey & Co to revive operations. This will be backed up by financial support of Rs 1,500 crore. The resolution plan of the lenders consortium aims to bring in a new investor by end June. Hopefully, the lenders will be able to exit according to the timeline because the current arrangement is at best an interim measure. In the event the effort fails and the loss making airline continues to descend, the next stop will be bankruptcy proceedings. In that case, the loss for lenders and airline stakeholders will be greater.
The Jet resolution effort is critical as it’s a test of a new framework where the combination of a bankruptcy law and RBI’s tighter regulatory framework is meant to change the nature of Indian capitalism. Promoters in this scenario will not be insulated from contractual obligations to lenders. The government can do more to change the situation. Along with the welcome change represented by the bankruptcy framework, more needs to be done to ease doing business. For the aviation sector, government should persuade states to bring petroleum products into GST and thereby rationalise their taxation structure.
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