Why Jet Airways is a bigger nightmare for bankers and government than Kingfisher was

On the surface, there was nothing in common between the flamboyant Vijay Mallya and the highly reticent Naresh Goyal. Mallya loved living life "kingsized" and he threw spectacular parties with beautiful women and multiple celebrities in tow, owned some great houses, collected fast cars, owned a stud farm and dabbled in multiple businesses. He actively sought out publicity and flaunted his connections - getting himself elected to the Parliament through the Rajya Sabha route with the help of several friendly political parties.

Naresh Goyal gave few interviews and stuck largely to travel (he started off by first working with his uncle in the latter's travel agency and then started his own business which was an agent of several foreign airlines). Jet was largely his entire life and he was known to be fairly parsimonious in his travels and business expenses.

Both men though built airlines with wonderful flying experiences. Kingfisher, when it was flying, was one of the best airlines for passengers both in economy and business classes. Jet, of course, had set new standards when it first came in and its service quality during its heydays was only matched (in my opinion actually excelled) by Kingfisher. Now that it has been grounded - the board and lenders are hoping temporarily - there is only Vistara left for passengers hoping for a not-too-uncomfortable travel experience. (The low cost airlines are efficient but not particularly passenger-friendly while Air India is too erratic and inconsistent in its experience).

Also read: Jet Airways' temporarily shutdown a setback for Indian aviation: Air India chief Ashwani Lohani

For bankers and vendors though, both men were bad businessmen when it came to running an airline. Kingfisher Airlines of course never made any money during the time it was flying and kept borrowing from bankers promising to turn around soon. But Jet, which at one time had a great market share (over 20 per cent) and made profits was not particularly well run as a business either. It made profits only when policy conditions favoured it, or when the aviation sector was enjoying particularly benign times. Once aviation fuel costs or other expenses started rising, Jet would start hemorrhaging money.

So, why did bankers continue supporting airlines long after it became apparent to them that they were losing money hand over fist and the troubles were mounting. You could say that the politics of the day had much to do with that.

Both Goyal and Mallya had great lobbying powers and lots of friends in political parties across the spectrum. It is no secret that the government of the day probably wanted bankers to keep Kingfisher afloat just as the current government would like the Jet problem to go away at least until the voting for general elections is over. (Goyal had better luck lobbying with policy makers than Mallya for a long time though his luck seems to have run out).

Unlike job losses and bankruptcies in non-glamorous business such as steel, power or construction, airlines are highly visible and a prominent airline going down and lots of highly vocal and highly paid pilots, cabin crew and ground staff is the worst sort of publicity for governments and lenders. No government facing elections would like such publicity, which is why public sector lenders were leaned upon to look favourably at the airlines when private sectors lenders were staying away.

For both bankers and the government though, Jet is a far worse nightmare than Kingfisher was. Mallya had a string of businesses and physical assets. He owned big houses in metros, had commercial real estate, and was the owner of multiple profitable businesses - including USL, UB and Mangalore Chemicals & Fertilisers. He owned a stud farm as well as a luxury villa in Goa where many parties were held.

A lot of his loans were taken after pledging these assets to banks. Though there are legal complications and multiple agencies involved, there is a hope that eventually when the noise comes down and the lawsuits are settled, a lot of these assets will be monetised. Bankers can hope to realise a good part of their loans - especially because of the pledged shares in the two liquor companies.

For bankers, there is no such comfort in the Jet case, while its liabilities are actually more. (Mallya's liabilities look more currently by Rs 500 crore or so but that is because of interest accrued, not principal. The Rs 8500 crore that Jet owes lenders is principal, not interest). Naresh Goyal stays in London most of the time and he has no other business in India that can be seized or monetised. Jet itself does not have any physical assets - in terms of real estate or enough planes. There is nothing much that bankers can do to recover the money unless some buyer comes forward and takes over the grounded Jet. And there too, time is pretty short - less than 90 days. If Jet cannot be kept flying during this period, it will lose its airport slots and bilaterals - the only thing that is valuable (apart from good staff) in the airline along with the brand name.

Thus for both the bankers and the government, Jet is a worse migraine than Kingfisher ever was.

Also read: Jet Airways shutdown: Value of JPMiles 'secure and intact', says Jet Privilege

Also read: Cash-strapped Jet Airways to suspend operations from tonight