Jet Airways flew high on Monday; the stock surged 5 per cent to close at Rs 42.15 on the BSE. The airline, which had grounded all operations in April 2019 amid mounting losses, was finally set to be acquired by new owners and investors gave a big thumbs up.
After calling in bids and months of negotiations, the lenders finally approved a resolution plan, under which London-based Kalrock Capital and businessman Murari Lal Jalan would acquire the troubled airline, which was once the country’s largest private carrier.
“The resolution plan submitted by Murari Lal Jalan and Florian Fritsch has been duly approved by the CoC (Committee of Creditors) under section 30(4) of the Insolvency and Bankruptcy Code as the successful resolution plan,” Ashish Chhawchharia, resolution professional for Jet Airways, said.
The resolution professional will now file an application for approval of the resolution plan by the National Company Law Tribunal.
Who are the new owners of Jet Airways?
London-based Kalrock Capital is part of the Fritsch Group founded by real estate and tech entrepreneur Florian Fritsch. Kalrock operates in financial advisory and alternative asset management, and is active in three verticals – real estate, venture capital and special situations.
Murari Lal Jalan, meanwhile, is the chairman of the real estate company MJ Developers, which is developing various projects in Uzbekistan. Jalan is also the chairman of the Dubai-based Ajio Image Group, which has business interests in UAE, Russia, CIS (Commonwealth of Independent States) and India.
“Originally focused on distribution of photographic products in the early 1990s, the group is today also involved in trading, distribution, construction and real estate, and medical services,” the company states.
Now, if the resolution plan is approved by the NCLT, Jalan and Kalrock Capital will be piloting Jet Airways. The airline, which was founded by Naresh Goyal, was at its peak the country’s largest private airline with a fleet of more than 120 aircraft and flights connecting dozens of cities in India and international destinations like London, New York, Brussels and Singapore.
However, as competition from low-cost airlines rose and losses mounted, Jet Airways was forced to ground all its flights in April 2019.
Manoj Madnani, a board member of Kalrock Capital, told a TV channel that the plan was for Jet Airways to become a full service airline. While they already had a route plan in mind for domestic operations, it will go international too depending on the slots, he said.
The challenges though are steep. The COVID-19 pandemic has crippled the global aviation industry. As the virus continues to rage across many countries, travel, be it for business or leisure, remains restricted hitting airlines hard.
In June this year, the International Air Transport Association (IATA) projected that the airline industry would report loss of over $84 billion in 2020. It further warned this month that the airline industry will burn through $77 billion in cash during the second half of 2020.
“It’s definitely not the most ideal time to restart operations,” said Vinamra Longani, head of operations at Sarin and Co., a law firm with expertise in aircraft finance and other aviation-related issues.
He says depressed demand for air travel due to COVID-19 will probably be the biggest challenge the new owners of Jet Airways will face as they will look to restart the airline.
There are other operational problems as well. Much of Jet’s leased fleet had already been taken back by lessors and re-leased to other carriers around the world, including India.
Currently, it has only a dozen-odd planes that it owns, which includes Boeing 737 and wide-body Boeing 777s and Airbus A330. Analysts say operating the wide-body planes on domestic routes will not make much sense and restarting international flights may depend on availability of slots.
Aviation is a cash-guzzling business. The new owners will require a lot of funds to restart Jet, get new planes, whether they buy them or take them on lease, and then hire experienced staff. The new owners have reportedly agreed to invest around Rs 1,000 crore in the airline, although there is no official confirmation on that yet.
“For any airline to be relevant, you need certain scale. For that, they would require significant capital infusion to fund the expansion,” said Longani.
After Jet grounded flights in April last year, 280 slots at Mumbai airport and 160 in Delhi fell vacant. As the carrier remained grounded, the slots were redistributed to other airlines in the months that followed. Many of Jet’s employees who hadn’t been paid for months also eventually left to join other airlines or other businesses.
When and how many slots does Jet Airways get is uncertain for now and that could eventually determine how many flights the company is able to operate in its new avatar.
If the resolution plan of Kalrock Capital and Murari Lal Jalan receives approval from the NCLT, then the expectation is that the new owners could start the airline sometime in early to mid 2021. They would certainly be hoping that the overall operating environment will have improved by then and at least the COVID-related headwinds would have reduced.
However, it will still have to battle competition from the low cost carriers. Indigo, the country’s largest airline, commands a 57 per cent market share. SpiceJet, another low-cost carrier is also expanding internationally; it recently announced flights to London. Vistara, the full service airline, owned jointly by Tata and Singapore Airlines, also has plans to expand international operations.
It is going to be a “herculean task” for Jet Airways, Mark Martin, founder and CEO of Martin Consulting said.
