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   Vol. 18 No. 50
Tuesday July 30, 2019

Perils Of Jet Airways
Betty Hutton

Not since 1914, and the silent movie serial “The Perils of Pauline,” which was in 1947 brought back as a talkie starring Betty Hutton (pictured), has transportation had a cliff-hangar to top the on-again, off-again saga of now bankrupt Jet Airways.
     Just like Pauline, every time you think she is finished, even as a high-speed train bears down on her helpless figure tied to the track, somebody jumps out and saves the day.
     India’s Jet Airways enters the conversation these days in India every now and then raising the question, will it ever be revived?

Naresh GoyalNaresh In The Picture

     Naresh Goyal. Jet’s founder and CEO, until he exited the scene some time ago, had pleaded for government help to resurrect the carrier but it had not yielded results.

India Washed Its Hands Off Jet

     India’s Civil Aviation Minister Hardeep Singh Puri recently said in the Upper House of Parliament, that while the government was in touch with domestic airlines to accommodate the Jet Airways staff, the revival of the airline was only possible under the Insolvency and Bankruptcy Code (IBC).
     The government, said Puri, could not be held responsible for the business failure of a private entity.
     He said that the government had no role in raising funds for Jet Airways, as it was Jet’s internal matter.
     “Each airline prepares its business plan on the basis of its own market assessment and liabilities. Based on their business plan, the efficient operations and financial resources are the responsibility of the airline,” said the minister.

Jet Rose To Number Two

     First, a few facts. Naresh Goyal-led Jet Airways, the country’s second-largest airline shut down its operation on April 17, 2019 after the State Bank of India-led consortium of lenders who control 50 percent ownership of the airline, refused to provide it the much-needed emergency funding of $60 mn.

Attempts At Resurrection

     Between then and now, there have been attempts by quite a few entities to start the carrier again.
     But hopes were set way back when Jet’s creditors—the 26 banks led by State Bank of India (SBI)—failed to convince anyone that the carrier was a ‘going concern’ and were forced to approach the National Company Law Tribunal (NCLT) in Mumbai on June 20 to start bankruptcy proceedings.

Time Is Short

     The court directed the bankruptcy resolution firm Grant Thornton, which has been working with creditors on behalf of the Jet Airways, to complete the recovery process within 90 days, instead of the 180 days that is typically the norm.
     The bankers have also been considering a request to provide interim funding of $10 million to pay salaries to employee, legal dues, compliances, operational and maintenance costs, among other things.

Offers In August

     The Expression of Interest (EOI) window to gauge buyer interest in the airline will be opened in early August and candidates will be shortlisted soon afterwards.
     Whatever the outcome of the EOI, it will take quite a while for the Jet Airways issue to be sorted out.
     Let’s take a look at some of the challenges.

Lawsuits Of Plenty

     To begin with, according to reports, the NCLT has received claims worth $3740+ mn through 16,643 claims.
     The financial creditors (14 domestic banks, 12 foreign banks and eight lessors) made 37 claims totalling $1537 mn.
     The hefty claim numbers hide a bitter truth that Jet Airways and its bankers are keen to hide.
     The truth will be out when the forensic audit report (done by Ernst & Young appointed by the banks in December last year for the period between April 2014 and March 2018) is made public.
     According to Jet’s latest audited balance sheet, its total liabilities amount to $2968 mn. But the NCLT received claims amounting to more than $3740+ mn. Why is there a difference of $1772 mn?

Is Anybody Happy?

     The question that keeps popping up is: Why have the liabilities—assuming they are genuine—remain unpaid?
     In the last 12 years, Jet has had continual losses except on two occasions.
     Why then were the liabilities not paid up?
     And, why did they remain undetected for years?

The Contingent Liability Two-Step

     The answer lies in Jet’s contingent liabilities and how the airline neatly danced around the numbers.
     In the audited Jet Airways balance sheet, contingent liabilities were listed amounting to $9018 mn.
     Contingent liability is a potential liability that may occur, depending on the outcome of an uncertain future event.
     So contingent liability is recorded in the accounting records if the contingency is likely and the amount of the liability can be reasonably estimated.
     The auditors got away by hiding this whopping sum in the garb of contingent liabilities.

HQ Building Repossessed

      The claims notwithstanding, the owner of Jet’s office spaces in Mumbai have sent a notice through its law firm to the NCLT, to repossess the building.
     The lease agreement was terminated on June 7, but goods, including computers and files are still in the office premises.

Fliers & Partners Are Frankly Screwed

     Even as the banks, financial institutions and creditors wait for a resolution, fliers with the carrier’s advance tickets are the most worried.
     Jet Airways had codeshare partnerships with airlines spanning across the globe from Aeromexico and Air Seychelles to Fiji Airways and Flynas and well-known names like Air Canada, Air France, Delta, Korean Airlines, Malaysia Airlines, Qantas and Virgin Atlantic. There are many ticket holders who have queued up to return their tickets and get their money back.
     Jet Airways website points out it will take 7-10 working days for the credit to reflect in ticket-holder’s account (for cancelled tickets).

Help Is Pledged By MoCA

     The Ministry of Civil Aviation (MoCA), the DGCA (Directorate General of Civil Aviation) and other regulators are aware of the problems being faced by passengers.
     The MoCA has tweeted:
     “Any passenger complaints or issues should be promptly reported to the Ministry of Civial Aviation’s AirSewa portal or on its mobile app.
     “We will follow up immediately.
     “Our overriding priority remains the safety, convenience, and affordability of our Aviation system.
     “We are assisting airlines and airports to bring in capacity rapidly to ensure that fares remain stable and competitive.”
     “As for travellers who were members of Jet Airways’ frequent fliers’ program, Jet Privilege—incidentally, an independent company under the Etihad Group—remains operational even as the airline has stopped operations only “temporarily”.
     Jet Privilege announced that the value of JPMiles (the frequent flier points) would stay secure and intact.
     It said: “Members have the choice to redeem their JPMiles to fly free across more airlines, any destination, any flight, and any seat, in India and globally, starting with the same JPMiles requirement as before which was applicable to Jet Airways and its partner airlines.”

Conversion Rate Cut To Redeem Miles

     However, there was a catch.
     According to reports, though the carrier has send out an e-mail saying that JPMiles could be used to book flights on other airlines through the “select flights” option on Jet Privilege’s website, the conversion rate was lower.
     Many people right now, sources say, are changing the JPMiles for Amazon vouchers, hotel bookings and even books and magazines.
     There is also no clarity on what will happen to the Jet Airways slots.
     At Delhi and Mumbai, domestic carriers have been temporarily awarded the Jet slots.
     If the airline fails to get a new buyer, these slots will remain permanently with them.
     As of April 18, 2019, the carrier had only five airplanes, down from 124 before the grounding.

Jet Airways Cabin Attendants

Hardeep Singh Puri Employees Taking The Big Hit

     The worst affected have been the employees.
     While those involved with operations, pilots and other crew members have to an extent been accommodated in other domestic and international carriers, a large number remain unemployed.
     The government has pitched in to help with the creation of a website for Jet Airways’ staff.
     On July 17, in the upper house of Parliament in India (Rajya Sabha), Civil Aviation Minister Hardeep Singh Puri said:
     “We are also producing a website which is ready. I wish I had the capacity of telling you that the website is up.
     “Every employee would be listed there and the prospects for their re-employment or employment will be facilitated by the government.”
Tirthankar Ghosh

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
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