Jet Airways' days are numbered as it awaits fund injection

Jet Airways staff staging a protest at the Indira Gandhi International Airport, in New Delhi, last Saturday. The debt-ridden airline is seeking an immediate injection of four billion rupees (S$77.8 million) to continue its few remaining services. PHO
Jet Airways staff staging a protest at the Indira Gandhi International Airport, in New Delhi, last Saturday. The debt-ridden airline is seeking an immediate injection of four billion rupees (S$77.8 million) to continue its few remaining services. PHOTO: REUTERS

Debt-ridden airline operating just 5 planes, as rivals benefit by covering its cancelled flights

MUMBAI • India's Jet Airways was teetering on the brink of collapse yesterday, operating just five planes and waiting for lenders to release emergency funds to keep the debt-saddled carrier flying.

Airfares on rival carriers have soared, and Air France and KLM are operating additional flights to Mumbai to accommodate passengers affected by Jet's decision to cancel international flights.

As the airline seeks an immediate injection of four billion rupees (S$77.8 million) to continue its few remaining services, here is a look at where it all went wrong for Jet.

1 COSTLY PURCHASE

Many aviation experts believe the start of Jet's financial troubles can be traced back to the 2006 purchase of Air Sahara for US$500 million in cash.

Founder Naresh Goyal reportedly ignored the advice of professional associates who said he was paying too much. Market reaction to the deal was also decidedly mixed.

The budget carrier was rebranded "JetLite" but it haemorrhaged money and, in 2015, Jet wrote off its entire investment.

"The acquisition is still a millstone around the company's neck," Mr Devesh Agarwal, editor of the Bangalore Aviation website, said.

2 BUDGET AIRLINES

India's aviation sector is fiercely competitive and Jet has taken a battering from a number of hugely successful low-cost airlines, including IndiGo, SpiceJet and GoAir.

Experts said the people running Jet failed to take the trio seriously when they were founded between 2005 and 2006, offering cut-price fares and previously unserved routes.

"They were essentially assumed to be fringe players by the Jet management," industry analyst Amrit Pandurangi said. "Jet always catered to corporates and failed to recognise that low-cost carriers were attracting customers who were price sensitive," he added.

3 POOR MANAGEMENT

Experts put a lot of the blame on Mr Goyal's management style. They say his decision to have a single management team, headed by himself, running all of Jet's operations was a crucial mistake.

Analysts say he should have had one team running the full-service carrier and another running the budget arm.

"Jet lacked a concrete business model and fiddled with it often, which confused investors, (and) passengers alike," said Mr Agarwal, who believes the company's decisions lacked transparency.

Mr Goyal has also been accused of making bad investments and failing to address the company's deteriorating financial predicament while borrowing heavily.

"Simply put, they spent more than they earned and kept accruing debts," added Mr Agarwal.

4 FLUCTUATING CRUDE

All of India's carriers are particularly sensitive to fluctuations in global crude prices because the Asian giant is a major importer of oil.

When the Indian rupee is weak, which it has often been over the past year or so, fuel - the biggest cost burden for airlines - becomes more expensive.

Soaring oil costs and the rupee hitting record lows last year affected all Indian carriers.

IndiGo and SpiceJet reported massive losses but analysts say their books were resilient enough to weather the quarterly losses. Jet's, however, were saddled with debts.

"Jet Airways failed to manage its balance sheets and was caught out by these cyclical changes in the industry," Mumbai-based economist Ashutosh Datar said.

5 FAILURE TO ATTRACT INVESTORS

Aviation analysts say Mr Goyal's failure to find a strategic investor to pump money into Jet extended the airline's losses, contributing to the financial predicament it finds itself in today.

Talks at the end of last year with tea-to-steel conglomerate Tata failed to go anywhere, while Etihad Airways reportedly refused to increase its stake because Mr Goyal was at the helm.

The 69-year-old was forced to give up control of Jet last month as part of a debt-resolution deal that saw a consortium of lenders led by the State Bank of India take over the airline. It is now up to them to find a buyer. If they do not, then Jet is likely to become the first Indian airline to collapse since fugitive tycoon Vijay Mallya's Kingfisher Airlines ceased operations in 2012.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on April 18, 2019, with the headline 'Jet Airways' days are numbered as it awaits fund injection'. Print Edition | Subscribe