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Jet Airways Revival: Is It A Case Of Boiling The Ocean?

By: Ramesh Vaidyanathan and Mansi Singh

Most people, other than perhaps the affected lenders and hapless employees, have moved on after writing the obituary of the debt-ridden Jet Airways ever since insolvency proceedings were initiated with the Mumbai bench of the National Company Law Tribunal (NCLT). Albeit terribly late, lenders did try to avoid getting here and sell the airline as a going concern on multiple occasions but did not succeed.

The insolvency proceedings were initiated as a final attempt by the lenders to find a buyer for the airline. While the lenders seem destined to lose either way, finding a new owner through the insolvency route may help salvage some value as compared to the chump change that they will get from the liquidation of a grounded carrier, with most of its key resources depleted/dissipated.

What happens now?

After the initiation of the insolvency process, the powers of the Board of Directors (whatever remained of the Board!) have been suspended and are being exercised by the Interim Resolution Professional (IRP). The IRP, who has been set a tight deadline of 90 days for concluding the insolvency resolution process, has so far collected financial creditors’ claims of 10,231 crore (approx USD 1.48 billion) and operational creditors’ claims of 12,372 crore (approx USD 1.79 billion). The Committee of Creditors has approved an interim funding of USD 10 million for the insolvency resolution process.

In terms of next steps, interested parties may submit resolution plans to the IRP for the revival of the airline and if no viable resolution plan is submitted liquidation proceedings will commence. The next few weeks will determine whether Jet sees the skies again or if its wings get clipped for good.

Who are the parties left on the deal table?

Prior to the commencement of the insolvency proceedings, except Mr. Naresh Goyal (the founder of Jet), there did not seem to be anyone interested in reviving the airline. Now that the insolvency process has been initiated, the interest of the Hinduja Group and Etihad Airways as a consortium and the Tata Group is likely to be rekindled. Delta Airlines may be another interested party. Any interested party will want the lenders to take a huge haircut on their dues. The operational creditors will be very lucky if some crumbs are left over.

What to expect on revival?

Jet would face significant headwinds on revival. It has already lost its goodwill and majority of its assets and talent. Almost all of the aircrafts have been deregistered and many have moved to rival airlines. Bilateral flying rights with five countries, which were previously allocated to Jet Airways, have now been temporarily handed over to Air India. Most crew members have been absorbed by rival carriers. To make things worse, the Ministry of Corporate Affairs has ordered a probe by the Serious Fraud and Investigations Office against several Jet group companies for financial irregularities. Navigating these challenges, resuming operations and regaining customer confidence will be a herculean task for any aviation player, leave alone Jet.

Enforcement of Cape Town Convention

In a related development, deregistration of a Jet aircraft has been stalled by the Directorate General of Civil Aviation (DGCA) invoking the moratorium currently operating with the initiation of the insolvency proceedings. This is likely to be a tricky situation because even though India acceded to the Cape Town Convention (Convention) that enables the owners/lessors of aircraft to deregister and export their aircraft by submitting certain pre-recorded documents, and without the need for any subsequent reference to the lessee/operators, it did not pass an enabling local legislation. As a result, certain provisions of the Convention are in conflict with Indian laws, particularly the Insolvency and Bankruptcy Code, 2016 (IBC). There is no clarity on whether an owner/lessor can deregister and export an aircraft from India once an insolvency resolution process is initiated against the airline and the statutory moratorium has kicked in. Taking note of the conflicting provisions of the Convention with other Indian laws, the Indian Government introduced the Cape Town Convention Bill, 2018 (Bill) to enable the stakeholders to avail the full benefit of India’s accession to the Convention. The Bill is yet to clear Parliament.

The Bill contains a non-obstante clause to accord primacy to the Convention in case of conflict with any other Indian legislation. Having said that, the presence of a non-obstante clause in the Bill may not help completely as some of the existing Indian legislations contain similar provisions granting overriding effect to such legislations in case of a conflict with other Indian laws. One such legislation is the IBC. In this scenario, aviation players are following the space with keen interest as the outcome of this will set a precedent for the future.

The future

In between all the chaos and uncertainty surrounding Jet, Ms. Nirmala Sitharaman, Finance Minister of India announced in her maiden budget speech of 5 July, 2019 that the Government of India may increase the foreign direct investment (FDI) limits in domestic air carriers from the existing 49%. While it may be too late to save Jet Airways, opening up the FDI regime is likely to help privatize Air India, the national carrier of India sitting on a debt bed of billions of dollars.

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