INSTEAD OF PRIVATISING Air India, the country’s white elephant, we are about to witness the quasi-nationalization of Jet Airways, one of India’s best – but most indebted – private airlines.
Under the Bank-Led Provisional Resolution Plan (BLPRP), a consortium of public sector banks and other institutional lenders will control 51 percent of Jet Airways’ equity. Chairman and Founder Naresh Goyal will step down. His shareholding will drop significantly. Etihad Airways’ equity of 24 percent could rise marginally. The balance will be widely held by the public.
Can a consortium of PSU banks run an airline? State Bank of India (SBI), which leads the bail-out consortium, is trying to protect its stressed loans in Jet Airways by converting them into equity in the hope that the revived airline will enable it to eventually offload its shareholding at a reasonable price to a new buyer, recovering some if not all of its debt.
It is, alas, classic debt-to-equity wishful thinking that lenders are often compelled to indulge in. Jet Airways faces not only a cash crunch but falling market share in increasingly competitive aviation industry. To keep Jet flying, the banks, as the airline’s majority shareholders, will need to pump in significant new funds just as the government is doing in Air India.
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