Potential Jet Airways investors call time on founder’s influence

The survival of debt-ridden Jet Airways is in question with negotiations to save it concentrated on persuading founder, Naresh Goyal, to relinquish his controlling role at the Mumbai-based carrier. Chief correspondent, Tom Ballantyne, reports.

February 1st 2019

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Negotiations to keep Jet Airways afloat were drawing closer to settlement at press time with the airline’s founder and chairman, Naresh Goyal, reported to be prepared to step down from the carrier’s board if minority shareholder, the Etihad Airways Group, agreed to raise its price for an enlarged holding in the carrier. Read More »

The Abu Dhabi aviation group holds 24% of the Indian international carrier and has offered to increase its equity to 49%, a cash injection the carrier desperately needs. But Goyal was holding out for a better deal and an additional 25% holding. Retaining 25% of Jet gives Naresh some beneficial voting rights.

Etihad, which also has been lossmaking for the last two years, has informed the State Bank of India (SBI) it would purchase Jet shares at Rs 150 (US$2.11) each. SBI is the lead lender to the airline.

Other conditions for Etihad’s additional investment included a reduction in Goyal’s 51% equity in Jet to 22% and the removal of any family influence at the airline. According to reports, Goyal was willing to sell his shares at Rs200, but was not prepared to let his holding in the carrier go below 25%.

In the past year, Jet’s share price has been as low as Rs 163. At the end of January, it stood at Rs 276 on the Bombay Stock Exchange. Indian media reported Goyal “is holding on till the right valuation is negotiated”.

Although it controls more than a sixth of India’s booming aviation market, Jet has become the country’s latest corporate basket case as a result of high fuel taxes, a weak rupee and cut throat competition from rivals, particularly low-cost carriers.

It is carrying $1.13 billion in net debt and has not reported a profit for nine of the last 11 years. It is months behind in payment of wages and benefits to its employees and it has been reported that some lessors have commenced the process of re-possessing aircraft because Jet has failed to meet its monthly leasing commitments.

An invitation to TATA Industries, already a joint venture investor with Singapore Airlines in Vistara and Malaysia’s AirAsia India fell through apparently over demands Goyal step down from the carrier.

SBI, as the carrier’s largest creditor, said in January Jet lenders were considering a restructuring plan under the RBI (Reserve Bank of India) framework for the resolution of stressed assets that would ensure long-term viability of the company.

In a letter to the SBI chairman, Goyal said he was willing to invest $98.48 million in the airline and also pledge all his shares in the carrier on the condition that he retains 25% of the company he founded.

Etihad’s Tony Douglas, has told the SBI it would pump $35 million into the carrier if Goyal stepped down.

The structure of a rescue would require approval from India’s Central Bank, the country’s market regulator, the civil aviation ministry, the airline’s board and all of its lenders, SBI said. Under Indian law, ownership and control of Jet must remain in domestic hands.

If there is a change of management at Jet after a takeover, the new buyer has to make an open offer to the general public to buy an additional 25% of the carrier. Transactions must be cleared by the Securities and Exchange Board of India (SEBI).

The open offer price has to be the highest of the prices determined by four parameters:

• the negotiated price between the buyer and the selling promoter

• a volume weighted average price of the 52 weeks before the public announcement of the takeover

• the highest price the buyer paid in the 26 weeks before the announcement of the takeover

• or the volume weighted average price of 60 trading days before the announcement of the takeover.

India’s prime minister, Narendra Modi, faces national elections in April and May. He came to power in 2013 with promises of millions of new jobs and business friendly policies.

Modi’s rivals say figures reveal the $2.6 trillion economy has been losing jobs on the prime minister’s watch.