November 5, 2023

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JIL sank as Goyal was averse to change, wanted his opinion to be supreme: Jet top execs to ED | India News

5 min read

The top management of Jet Airways has squarely blamed Naresh Goyal for the airline’s demise. In their statement to the Enforcement Directorate (ED), the CEO and other top managers of the company said over-centralisation of power by Goyal, his obsession with obsolete systems such as general sales agents (GSA), ignoring advice of top aviation minds, his refusal to lose controlling stake in the company and the involvement of his family were reasons that led to the Jet ship sinking.

Goyal had been arrested by ED in September in connection with the central agency’s money laundering probe into a Rs 6,000 crore alleged bank fraud committed by Jet Airways India Ltd (JIL). Earlier this week, the agency filed a chargesheet against Goyal, his wife Anita, JIL and various entities in the case.

Statements by JIL’s top executives are part of the chargesheet.

In his statement to the probe agency, Goyal has blamed Jet’s failure on high fuel prices and taxes, high landing navigation charges, high global distribution system (GDS) cost and the government’s refusal on the merger of Jet Lite Ltd (JLL) with JIL.

However, JIL and JLL CEO Vinay Dube told ED he “found decision making at the airline to be very cumbersome and most strategic decisions were not made in a timely manner”. He added that even as CEO, he was not in a position to implement his plan with the speed that the airline required.

Festive offer

“Every decision, no matter how small, had to go to the Chairman/promoter of the Company and the decision making was painfully slow. The Chairman of the company was averse to change (he was still stuck in old aviation from the 1990s) and did not listen to the informed opinion of aviation experts. As such, what should have taken 6-12 months to implement was not done in 18 months or really until it was too late,” he told ED.

According to Dube, the reason JIL shut down was because the airline did not generate cash from operations and was not sufficiently capitalised. In the case of JLL, the cost structure was too high to compete with low cost carriers (LCC).

He told ED that within three months of his joining as JLL’s CEO, he reported to the board of directors that the airline was in “financial crisis” and the company needed to be recapitalised. However, the board was powerless in this regard as it was a shareholder matter and Goyal, being the largest shareholder, refused to move on this.

“It was very sad to see that in the end the largest shareholder chose not to dilute his share in the company until, again, the fate of the airline was sealed,” he said. As per Dube, though Goyal was designated as non-executive chairman, he would micro manage all decision making. Dube also suggested that the company board was constituted in a manner that the chairman’s opinion remained supreme.

“The Board consisted Nominee Directors of the Chairman (4 in number), 2 nominee directors of Etihad Airways (which had 24% stake in JIL) and 6 independent directors. The 2 nominee directors of Etihad had deep airline expertise …the independent board members …were not airline experts. As such, very often the independent directors would vote on airline technical matters in line with the Chairman,” Dube said.

Regarding hiring of GSAs, Dube said he did not believe in there being a Global GSA or even a GSA for India because this kind of work could have been handled more efficiently from within the airline. He said that when he tried to initiate change, he was met with a lot of resistance from Naresh and Anita Goyal.

The Indian Express had reported how JIL paid over Rs 2,300 crore to these GSAs, which were mostly Goyal’s personally owned companies. Almost 50 per cent of all GSA commissions went to the Goyal-owned GSAs.

Ravichandran Narayan, Senior VP, Finance, of JIL said in his statement that bulk order of wide-body aircraft with three class configurations was one of the reasons JIL was grounded.

“The negotiations for this purchase were led by the Chairman personally. Jet could not effectively deploy its fleet on profitable routes leading to mounting losses. At the same time these aircraft also could not be left on the ground as they were incurring fixed cost without any revenue. Also, its three-class configuration was not found to be viable considering the market conditions,” he said.

Gautam Acharya, VP (Legal and Regulatory Affairs), JIL, recounted two deals that caused massive losses to the company. One was JIL’s participation in Etihad’s Project Box, a non-convertible debenture scheme, and JIL discontinuing its lease agreement with Turkish Airlines and giving the aircraft to Etihad at a massive loss.

According to Acharya, when three Boeing 777 sub-leases of JIL’s to Turkish Airlines were due to expire, the latter approached the former with a request to extend the lease until October 2019 as well as leasing two additional aircraft. Etihad Airways, however, told JIL not to offer additional aircraft or extend the lease term as it would mean strengthening the competition. Etihad Airways instead decided it would take four Boeing 777 aircraft on sub lease, albeit at a lower rate and for a shorter duration.

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“In the spirit of cooperation and partnership, JIL agreed to the proposed 800,000 USD per aircraft per month (The lease rent for Turkish Airlines was 955,000 USD per aircraft per month) but ended up suffering significant financial losses, to the tune of USD 220 million,” Acharya said.

The success of the Project Box scheme, according to Acharya, depended on the participation of all the carriers in which Etihad Airways had invested. The proportion of borrowing in Project Box was linked to the prevalent value of the airline. Accordingly, JIL was allocated USD 100 million.

“This borrowing came to JIL at a rate of 23% while prevalent market rates were around 10-12%. JIL had to place a deposit of USD 8 Million. As per the scheme, at the end of the tenure of the borrowing, JIL would have received its deposit. However, owing to the collapse of Etihad group’s Air-Berlin, JIL stood to lose this deposit. As a result of this loss of deposit and the increased interest rate, the JIL management projected that the company lost USD 63milIion over the term,” Acharya said.

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