Why the Jet Airways rescue has failed to take off

The Jalan Kalrock consortium’s (JKC) source of funds to acquire Jet Airways (India) Ltd has become the latest flashpoint in the airline’s tortured path to recovery. While JKC blames lenders for delaying decisions, bankers say the consortium has been seeking extensions and not offering a clear revival plan more than two years after making the winning bid for the grounded airline.

Banks are unsure how JKC has sourced funds for the acquisition, a banker from one of Jet’s lenders said, especially since Kalrock’s promoter Florian Fritsch is being investigated in Europe for suspected fraud and money laundering. On 4 October, lenders approached the National Company Law Tribunal (NCLT), demanding to know the source of JKC’s money.

“JKC is telling us there is no concern following the raids, but we are well within our rights to ask for a fresh clarification owing to the seriousness of the matter,” the banker said on condition of anonymity.

If JKC is unable to provide clarity on the issue and fails to follow the Supreme Court (SC) order on paying employee dues, lenders should take the last step of liquidating the airline, he suggested.

JKC includes Dubai-based Murari Lal Jalan and the UK’s Kalrock Capital, while the committee of creditors (CoC) is led by State Bank of India (SBI), the country’s biggest lender. About 11 banks, including nine Indian lenders, lent money to Jet.

According to an executive working with JKC, the airline’s monitoring committee has not met in a long time, and there is no decision yet on retaining its aircraft for future operations. The lenders have still not issued equity to JKC despite making payments, the person said.

“We have asked for the CoC’s approval on certain things. One was the usage of us retaining the narrow-body assets that Jet owns. The request is to leave these narrow-body aircraft (three Boeing 737s) in the company and not sell it... And then we acquire it,” the person said on condition of anonymity.

The monitoring committee has three bankers and three JKC nominees, and has to meet regularly like a company board, the person said, adding that despite repeated reminders, there has been no committee meeting in the past year.

The banker cited above declined to comment on the monitoring committee meetings.

“It is JKC that has been asking for extensions for the last several months and delaying the process. They need to present us with a coherent plan and declare the source of funds,” the banker said on condition of anonymity.

JKC has not filed an affidavit in court on the source of funds. The hearing on the source of funds in the SC, scheduled for Tuesday, did not happen.

An email sent to a spokesperson for SBI seeking comment remained unanswered.

Before its grounding in April 2019, Jet Airways was the second-largest carrier in Indian skies and the largest Indian carrier on international routes. The insolvency process began in June 2019, and the NCLT approved JKC’s resolution plan on 22 June 2021, which proposed investing a total of ₹1,375 crore, including ₹475 crore to settle dues and ₹900 crore for capital expenditure and working capital.

The plan also envisaged JKC first infusing ₹350 crore (it was decided that ₹350 crore of the ₹475 crore would be a mandatory infusion for the transfer process to start) into the airline, which got delayed due to several reasons, including litigation. In August, the company law appeals court asked JKC to pay the amount by 30 September and permitted an adjustment of ₹150 crore from an existing performance bank guarantee. The consortium made the full payment of ₹200 crore within the stipulated period in two instalments.

The JKC executive cited above said about ₹120 crore of the ₹200 crore came from Kalrock Capital through a UAE-based special purpose vehicle (SPV) that was formed for this investment and is already approved in the plan. “Also, this SPV in the UAE is security cleared by the ministries of home and civil aviation. So, they have security cleared this entity,” he added.

“Of the balance of ₹80 crore, ₹47 crore has come from Murari Lal Jalan’s personal account. So, there are no questions on that since he is also security cleared and approved in the plan on that. There is a balance of ₹13 crore, which has come from a company in India. That company is owned 100% by Murari Lal Jalan,” he said.

Legal experts said sourcing of funds is addressed early on in the resolution process.

“Whenever a plan is submitted, the applicant also provides details about the source of funds, and the resolution professional, as well as the committee of creditors, evaluates it. Further, in the evaluation matrix under the Insolvency and Bankruptcy Code, there are points for the net worth and upfront payment proposed by the applicant, and the committee considers this aspect as well,” said Ashish Pyasi, partner at Aendri Legal. “After the plan has been approved by the NCLT, then the company is out of the resolution process, and the committee becomes functus officio (possessing no further legal authority),” he added.

He said it may not be possible for the CoC to reopen the process since the monitoring committee is overseeing the plan. “However, by approaching the NCLT, if any decision is based on some wrong information or suppression of information, then the NCLT may consider it accordingly,” he said.

JKC is also disgruntled about not being issued equity after making the payment.

“The rule says within two months (ended 30 October for the first payment made in August), the company has to issue shares to the investor, and then this money can become usable money. Today, this money is like escrow money, which is there for equity investment only,” the executive cited above said. He added that the company will take legal advice on further course of action, which include options such as seeking a refund of the amount or a reminder.

Despite the troubles, JKC is hopeful they will be able to revive Jet Airways.

“We have put in equity to the amount of ₹350 crore in the company. We have invested another ₹200 crore to maintain the company and associated expenses for the last three years... we will continue to work on reviving the airline,” the executive added.