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NCLAT Junks JKC Plea Challenging Sale of Jet Planes

Jet Airways’ Legal Challenges: Implications for Investors and the Industry

Analysis for Layman

India’s National Company Law Appellate Tribunal (NCLAT) has dismissed appeals filed by Jet Airways’ new owners, the Jalan Kalrock Consortium (JKC), as well as the airline’s staff association. These appeals aimed to block the bankruptcy-driven sale of three Jet Airways aircraft to a separate entity, Ace Aviation.

The sale had earlier been approved by the Mumbai bench of India’s bankruptcy court, NCLT, which is overseeing Jet Airways’ corporate insolvency resolution process. With the appellate ruling, the aircraft sale worth ₹50 crore can now proceed as part of Jet’s restructuring plan.

JKC and the staff association had contested the sale, questioning why aircraft were being sold prior to the full insolvency resolution. However, NCLAT ruled that the approved resolution plan already protects stakeholder interests, and asset sales are a standard part of such insolvency proceedings to raise funds.

The revenue from the aircraft sale will be held in escrow for now, to be disbursed as per the NCLT-authorized resolution plan. This will mainly help provide some recovery for creditors owed over ₹8,000 crores by the formerly largest Indian airline, which stopped flying in April 2019.

NCLAT Junks JKC Plea Challenging Sale of Jet Planes

Impact on Retail Investors

Short-Term Progress and Reduced Uncertainty

For retail stock investors, the dismissal of legal challenges to Jet Airways’ restructuring and asset sales represents a step forward in its long-drawn bankruptcy process. The appellate ruling allows for the monetization of some aircraft assets, which will contribute to partial creditor settlement under the JKC-led revival plan.

Moreover, it reduces residual investor uncertainty about complex legal obstacles that could have delayed Jet’s emergence from bankruptcy.

However, significant execution challenges remain, even after more than three years of court-led reorganization. As Jet Airways is still under professional management by creditors during the insolvency period, its stock has not been trading since the insolvency began in 2019. Therefore, retail investors do not have direct exposure to Jet Airways’ stock at the moment.

Nevertheless, the revival of Jet Airways could impact the competitive landscape among Indian airlines, which could have implications for stocks like IndiGo and SpiceJet. Retail investors should monitor Jet’s actual operational restart.

Impact on Industries

Stability and Confidence in the Aviation Industry

For India’s airline industry, this ruling signifies incremental stability in Jet Airways’ path out of insolvency, demonstrating judicial support for its revival efforts. Jet’s re-launch under new owners and with a revamped fleet and operations could reintroduce a competitively-priced full-service carrier offering both domestic and international routes. This has the potential to expand the overall travel market and impact fares.

Furthermore, the finality of the aircraft sale reduces uncertainty for lessors, financiers, and global aviation entities observing Jet’s case for implications on India’s aircraft leasing and secured financing ecosystem.

The upholding of resolutions made under the Insolvency and Bankruptcy Code (IBC) monitoring process signals general creditor confidence in the structured bankruptcy framework and the security of underlying assets in complex airline cases.

Once Jet Airways is back in operation, it may particularly impact full-service carriers like Vistara and Air India, as well as the international operations of IndiGo, SpiceJet, and others through competitive domestic connectivity and international scale. However, the actual scale of its comeback remains unknown at this point.

Long-Term Benefits and Negatives

Strengthening Bankruptcy Laws and Attracting Investments

In the long run, a successful relaunch of Jet Airways after its extensive IBC reorganization process can demonstrate India’s bankruptcy code’s ability to credibly revive distressed assets in complex sectors like airlines. This can enhance enterprise valuations in capital-intensive transportation sectors by assuring financing entities that resolution mechanisms exist to recover loan exposure even if operators face temporary failures.

Additionally, strategic investors may become more active in pursuing Indian aviation assets offered under IBC processes, creating merger and acquisition opportunities that did not exist before bankruptcy laws allowed for more accessible rehabilitation solutions for distressed airlines.

However, until Jet fully emerges from the IBC process, completes its fleet and network rebuild, and achieves financial milestones, ongoing legal disputes and delays leave room for erosion of assets like aircraft and airport slots, which are crucial for any successful revival. Thus, long-term impacts on the sector depend on how quickly JKC can turn around Jet Airways, but conflicts of interest can hamper the distressed asset market dynamics.

Short-Term Benefits and Negatives

Incremental Progress and Clarity

In the short term, from 2023 to 2024, the key positive from the aircraft sale ruling is added clarity in upholding IBC process decisions and the commercial judgments made by the appointed Resolution Professional regarding asset monetization for creditors. This brings some incremental finality to Jet Airways’ complex insolvency proceedings.

However, the ruling does not significantly accelerate Jet’s overall resolution. Securing full regulatory clearances, re-certifying aircraft, refreshing operational capabilities, and re-staffing to resume even basic flight services remain a multi-quarter process.

From a sector impact perspective, incumbent airlines do not yet face an immediate competitive threat in the short run. The eventual shape of a revived Jet Airways may push strategic responses, like capacity adjustments, slightly sooner across key domestic and international routes that Jet previously dominated.

In summary, while this news provides some progress, Jet Airways’ full recovery remains a complex and lengthy process with many milestones to achieve.

Impact of NCLAT Decision on Jet Airways Plane Sale:

Limited Direct Impact on Publicly Traded Companies:

While no publicly traded companies were directly mentioned in the article, there could be some indirect impacts on various stakeholders:

Potential Beneficiaries:

  • Jalan Kalrock Consortium (JKC): Although their appeal to halt the sale was rejected, the focus on depositing proceeds in an escrow account might offer some assurance regarding future distribution of funds. This could provide some positive sentiment for JKC as the consortium continues its efforts to revive Jet Airways.
  • Ace Aviation VIII Limited: As the intended buyer of the aircraft, the NCLAT’s decision allows them to proceed with the acquisition, potentially boosting their fleet and operations.
  • Indian Airlines Industry: The sale of these aircraft could inject some liquidity into the aviation sector, potentially benefiting airlines looking for used airframes for expansion.

Potential Losers:

  • All-India Jet Airways’ Officers and Staff Association: Their appeal to stop the sale aimed to preserve assets for potential use in reviving Jet Airways. The sale reduces the available assets and might dampen employee morale and confidence in the revival process.
  • Lenders/Creditors of Jet Airways: The news likely has no major immediate impact, but progress in asset disposal could ultimately contribute to resolving the airline’s debts and potentially providing better returns for lenders in the long run.

Global Companies:

  • Aircraft Manufacturers & Leasing Companies: The sale provides a small boost to the used aircraft market and could indirectly benefit global players such as Airbus, Boeing, and aircraft leasing companies like AerCap and Air Lease Corporation.

Note: These are potential impacts based on the given information. Actual outcomes may vary depending on future developments in the Jet Airways revival process and other factors affecting the aviation industry.

Disclaimer: This analysis is for informational purposes only and should not be considered as financial advice. Please consult a qualified financial advisor before making any investment decisions.

Source:

NDTV Profit Team. “NCLAT Junks JKC Plea Challenging Sale of Jet Planes.” NDTV. Published Dec 23, 2023.

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