The Great Indian Asset Waste: The Jet Airways Story

For five years now, while landing in or taking off from Mumbai from the city’s secondary runway, I have seen a few Boeing 777s with the Jet Airways logo and colours gathering dust. Jet Airways shut shop in 2019 and the system, for lack of any other word, has struggled to find a resolution.

On Thursday, the Supreme Court of India ordered the airline’s liquidation, a decision that should finally bring closure for what it’s worth. Jet Airways has 11 aircraft in all, parked in Mumbai, Delhi and Hyderabad, according to reports.

One Boeing 777 should cost over $300 million or Rs 2,400 crore by current conversion rates. A report in CNBC TV18 said that all its aircraft taken together could fetch around Rs 1,500 crore on the higher side. This is likely the scrap value of the metal and parts, and not a fliable aircraft. There are some other sundry assets like office spaces and assorted equipment running into a few hundred crores of rupees.

The Many Legal Battles Of Jet Airways

Jet Airways closed because there were problems with its books and founder Naresh Goyal had allegedly diverted funds that had been borrowed from banks. It is not what happened before 2019 when the airline stopped flying, but what happened after that matters here.

The case meandered through the National Company Law Tribunal (NCLT). A consortium of buyers called Jalan Kalrock, with no evident track record in aviation, took over but could never cough up sufficient funds to actually get the airline flying again.

An association of airline employees knocked on various doors to get back the gratuity owed to workers and officers. The previous employer was gone and the new one said they had nothing to do with it, so the matter dragged on.

In another bizarre twist, the tehsildar of a Mumbai suburb, an authority you usually think of in more rural settings, attached four aircraft. How that tehsildar attached the aircraft and what it intended to do with it again wasn’t very clear.

Mumbai suburban collector, Nidhi Chaudhari had told the Hindustan Times at the time, in January 2023, that she was only responding to a labour court that had passed orders about pending dues of Jet Airways. “Since Jet Airways does not have any office in Mumbai, we have restrained sale of their aircraft. Either they can pay the employees, or else we auction the planes and recover the money,” she had said.

Systemic Failure

The story of Jet Airways is the story of collective systemic failure in recognising the time value of assets and the inability to deliver a speedy resolution for a dispute. It’s also an example of how many different arms of the state could entangle you if your business were to go under for any reason. Not exactly the best advertisement for ease of doing business.

This led to assets worth billions of dollars that could have been saved and put to good use had they been in the right hands and did not rot in the corners of different airports.

When it comes to disputes, the state has refused to recognise depreciating assets, whether it was Vijay Mallya’s Kingfisher Airlines or Jet Airways fleet of perfectly normal aircraft.

In December 2016 the Mumbai International Airport had told the Bombay High Court that an Airbus A319 belonging to Mallya’s defunct Kingfisher Airlines and parked in Mumbai had turned into nothing better than scrap and hence be sold off in scrap. The tax authorities however claimed their estimates valued it at $12 million.

Earlier, a private jet belonging to Mallya, an 11-seater Hawker 700, was again sold as scrap after being parked for three years.

Once again, both aircraft could have been sold off and the funds been parked in escrow as the cases against Mallya dragged on.

In both cases, Goyal and Mallya, banks were fighting to get back their loans. They could not or did not see that what they were trying to get back was draining value every minute they grandstanded in the court.

The NCLT was set up to address precisely this lacunae — businesses who face failure can fail and assets can be turned around quickly, like Chapter 11 in countries like the US. It has worked but its failures such as in the case of Jet Airways are also spectacular.

There is a time value to resolving business failures, particularly when there are physical assets involved, like plants, machinery or aircraft. Just because these assets were in private hands doesn’t mean they had no realisable or monetisable value that could have benefited taxpayers of the country.

The lack of accountability for such delays makes things worse because all agencies play football focussing on the principle of keeping something grounded rather than recovering economic value.

At times like this, you would not be blamed for thinking it is more lucrative and safe to become a scrap dealer in India rather than set up a venture involving physical assets.