By Prarthana Mitra
Numerous “reputational issues” faced by debt-ridden Jet Airways is proving to have an adverse effect on Naresh Goyal’s plan to finalise the sale of his airline to the Tata Group. The top brass of the mega-conglomerate on Monday cited several red flags concerning Jet Airway’s liabilities and funding sources, to file for a non-compete agreement while they set up an internal panel to look into the issues.
With the acquisition, Tata stands to gain Jet’s market share as well as liabilities
Besides incurring a massive debt of Rs 8,400 crore, Jet Airways also faces regulatory issues including government-led inquiries into their operations over the years, according to the sources. At the same time, it commands considerable presence in the domestic market, with 124 aircraft operating 700 flights a day, to and from 66 destinations. This puts the Tata Group in a dilemma over the divestment it is both keen for and wary of.
Tata Sons Chairman N Chandrasekaran reportedly thinks the acquisition of an airline which enjoys 15.8% market share, would strengthen and boost the groups performance in the aviation business. So far, the Tatas run and jointly own two domestic airlines, namely Vistara and AirAsia India (with Singapore Airlines and Malaysia’s AirAsia respectively).
How the negotiations might go, this point forward
During the company’s board meeting last week, Tata Sons discussed whether the proposed acquisition would help further the group’s aviation plans while acknowledging that ‘any such discussions have been preliminary and no proposal has been made‘. According to sources close to the development, the Tatas agreed they would move forward with the deal only after a proper and thorough due diligence on the financial aspects has been carried out. The group will appoint two external agencies for the probe besides the in-house team.
Some additional terms may be determined by the buyer before the transaction fructifies. Prolonging the negotiation will further drive down the selling price, according to industry experts.
Speculation has it that the Tatas may force Goyal out of his 51 percent stake and board positions the Goyals currently hold. Furthermore, a non-compete agreement may also be introduced, according to Business Standard, which would prevent Goyal from starting fresh negotiations with another party or participate in business proceedings, while the Tata panel vets the organisation.
“The Tatas are likely to insist on heavy non-complete clause with no travel-related business participation. This will be insisted along with a no-board presence of Goyal or his family members,” the publication reported the source as saying.
What we do know for sure is that the board has warned the management against rushing into the deal with Goyal’s airline, and currently awaits a comprehensive due diligence report before taking the final call.
Prarthana Mitra is a staff writer at Qrius