Jet
Airways Fiasco
What
happened?
Everyone was prognosticating and it finally happened
on 17th April. Jet Airways, once the crown jewel of aviation sector
in India suspended its operations after National Aviators Guild (NAG), the
pilots union threatened to go on strike due to frequent salary delays and
multiple warnings by lessors to ground the Jet’s fleet due to non-payment of
lease rentals. Jet’s fleet was down to 17 aircrafts in sky this month from 119
in total, rest were grounded. Founder Chairman Naresh Goyal due to external
pressure had to step down from Jet’s board and SBI led consortium of banks took
over the airline after conversion of debt to equity as Jet failed to repay the
loans taken from these banks.
Jet was bleeding with losses one after the other in
almost every quarter with ₹1323 crore loss in Q1 FY2019. In fact, Jet has
posted losses in 8 of the past 10 years. Jet lost its market share and reached
at fourth position with 11.2% market share from 22.6% in 2017. Jet’s share price from ₹1379 in April 2005
nosedived to ₹126 in April 2019. Over 400 pilots quit in past 7 months. Jet
owes nearly 11,261 crores to banks.
How paradoxical is that at one end India’s air
traffic is growing at an unprecedented pace beating every other market and at the
other end veteran players like Air India and Jet Airways are facing humongous losses.
Why
this happened?
It will be equally intriguing to know that how and
why the only private airline to fly abroad once is down on its knees to the
extent of shutting operations.
On a personal note, I feel that it’s the Naresh
Goyal’s stubbornness that led to this cataclysm. In 2009, when pilots went on a
mass strike, Naresh Goyal despite facing losses of ₹15 crore a day, did not
agree to their conditions. Also in 2007 when despite everyone including his old
friend telling him not to go ahead with ailing Air Sahara acquisition that had
an ageing fleet, he bought the airline for ₹1450 crore, Jet’s current crisis
started after that deal. Goyal acquired it to tackle Kingfisher Airlines and
other emerging low cost carriers like Indigo and Air Deccan, but this actually
backfired leaving Jet with no funds to counter competition.
Other operational failures and industry factors
responsible are:
1. Jet
moved its hub from Brussels to Amsterdam which increased its costs.
2. Aviation
Turbine Fuel (ATF) prices increased in line with the jump in crude oil prices
and fuel costs contributes 40% of the airline’s total cost. Jet was hurt the
most by it as majority of its flights are on international routes. Depreciating
rupee further exacerbated Jet’s woes as 66% of their payment is in dollars.
3. No
frills low cost carriers were seen gaining the market share with lucrative ticket
prices which attracted the price sensitive flyers. Full service carriers like
Jet and Air India were losing out in this race.
4. Jet
had an eclectic fleet with 777 Boeing, Airbus A330 and many more which were not
fuel efficient and that too with 308 seats capacity instead of global standards
of 400 seats. Goyal wanted to give flyers a palace like spacious feel and thus
lost a fourth of the potential revenue.
5. Jet
was borrowing continuously to provide the best services, to buy the most
flamboyant aircrafts at a time when flyers prefer low fares over service.
Even in the current turmoil, Tata
Sons agreed to buy a stake in Jet and was ready to provide funds but with the
condition that Goyal should step down from the board. That didn’t happen.
Etihad Airways, their partner which holds 24% stake in Jet was ready to infuse
more capital on the same condition but after deliberations, even Etihad was
looking to sell their stake instead than providing capital. Another instance of
Goyal’s adamant nature. Had Goyal ceded the control sometime back, things could
have been less worse.
