The Jet case: The bankruptcy code should have been invoked

Does India need two state-owned airlines?

There’s only one answer to that question. It’s a one-word answer, a word that begins with N and ends with O and has nothing in between.

Yet, pushed by the government — whatever be its reasons — India’s State-owned banks have traded roughly Rs 8,500 crorein debt for a majority stake in Jet Airways. It’s small consolation that chairman Naresh Goyal, who oversaw the airline’s descent into a fiscal mire, and his wife have stepped down from the board (although Goyal and his family and associates will still own 25% of the stock).

Lenders led by India’s largest bank, the State-owned State Bank of India, now own 50.1% of the airline and are in the process of putting together a committee or team to run it. This is a government that started off in 2014 with the aim of selling the State-owned Air India and which, a few years ago, actually made a concerted attempt to do so (there were no takers). The logic behind the move was straightforward: The government has no business running an airline. By the same logic, it has no business running two.

This is a retrograde step, simply because there is already a mechanism to deal with a case like Jet’s. This is a mechanism put in place by this very government — the Insolvency and Bankruptcy Code (IBC). Any resolution of the crisis at Jet should have happened through this. It may have involved a change of ownership through a sale; or it could have even involved a break-up of the airline and the sale of its assets. The code has enough in it to protect the interests of everyone — suppliers and vendors, lessors, lenders, even employees. To be sure, the code needs some fine-tuning but this is something that will only happen when it actually starts dealing with specific cases, and Jet’s is a textbook sample of the kind of case where the IBC should have been invoked.

Instead, the government, through State-owned banks, is doing what it has done many times in the past: throwing good money after bad.

First Published: Mar 26, 2019 19:20 IST