Jet Airways Crises Explained

Jet Airways Crises Explained

About Jet Airways-

Jet Airways is an Indian domestic airline based in Mumbai. In October 2017, it was the second-largest airline in India after Indigo with a 17.8% passenger market share. Founder Chairman Naresh Goyal and his family owns around 52 per cent stake in Jet Airways while Etihad, a strategic partner, has 24 per cent shareholding. 

The Crisis-
Since February 2019, the airline has been facing a financial crisis and on 25 March 2019, the airline's founder and chairman, Naresh Goyal , resigned due to the airline's situation. The airline was forced to cease international flights on 12th April 2019 as they had an operational fleet of less than 5, the Indian requirement.

The full service carrier is still grappling with acute financial woes that has resulted in grounding of a significant number of planes, defaulting on debt repayments and delay in payment of salaries to pilots and other senior officials. 

Jet Airways defaulted on loan repayments in December to its banks, casting fresh doubt over the future of India's largest international airline.

The company said it had failed to make repayments to a banking consortium, led by State Bank of India, that were due on 31 December.

Thus, its liquidity situation was stressed. The networth of the company was negative since liabilities have exceeded assets.

Its interest costs have been the highest in the December 2018 quarter.

A consortium of lenders, led by the State Bank of India (SBI), is working on a resolution plan for Jet Airways, which has a debt burden of more than Rs 8,200 crore. 

On February 14, Jet Airways board approved a bank-led resolution plan whereby lenders would become the largest shareholders in the airline. Following approval from the shareholders, part of debt would be converted into 11.4 crore shares at a consideration of Re 1 apiece as per the RBI norms. 

Since January, Jet Airways has defaulted thrice on payments to its debenture holders. 

On 25th March, Jet Airways founder Naresh Goyal and his wife Anita Goyal stepped  down from the board of the cash-strapped airline. In addition, Naresh Goyal  also ceased to be the chairman of the airline, he set up with his wife in 1993.

 Jet Airways board also said that an interim management committee will be set up to manage and monitor the daily operations and cash flow of the company.

One nominee of Etihad Airways, which owned 24% stake in the airline, also stepped  down from the board on 25th March

The lenders to the airline also announced funding support of up to ₹1,500 crore by way of issue of debt instrument against security of its assets to restore normalcy of operations.

In addition, a bidding process was also to be initiated by lenders for sale/issue of shares to new investor(s).


Current Scenario-

But, thus far, banks  have only disbursed less than Rs 300 crore - and that in small amounts - citing procedural delays. Due to this, the airline has neither been able to pay pending salaries nor its lessors and, hence, been forced to ground the bulk of its planes. The carrier has already suspended international operations till April 18.

With pilots being denied of their salary, the number of pilots has dropped to around 1,300 after about 400 pilots left in the wake of the crisis. On 16th April alone 23 pilots left the airline, with over 100-odd pilots joining budget carrier IndiGo. It has only 5 planes in its fleet now. As reported, the airways urgently needs at least a funding of 400 crores, else it would have no choice other than temprorarily halting its operations.


Once a Frontrunner, What Went Wrong?

First was the challenge from the entry of budget carriers. This led to dropping of fares by Jet Airways. Some tickets were sold even below the breakeven cost.

Second, provincial taxes of as much as 30% on jet fuel were added to its expenses.

Price-conscious Indian travellers refused to pay a premium for on-board meals and entertainment.

On a consolidated level, the company has bled in nine of the last eleven fiscals. In other words, it has kept its bottomline in the black in only two out of the last eleven years.

Third, aviation is a tough business.

Despite rapid passenger growth, the cost structures and high competition make it very difficult for airlines to turn a decent profit.

Lastly, the rise in oil prices was a death blow to their earnings.

There is a sense of urgency to rescue Jet Airways given the looming general elections.

With 23,000 jobs at stake, the failure of the bailout plan would send airfares spiraling.

Resolution Plan for Jet-

After inviting Expression of Interests from bidders interested in taking charge of Jet Airways, four companies are said to have submitted their EOIs.  The four firms are Etihad Airways PJSC, National Investment and Infrastructure Fund Ltd (NIIF) and private equity firms TPG Capital and Indigo Partners.