Jet Airways had been incurring a daily loss of  ₹21 crore and has debt and dues totalling at least  ₹15,000 crore. (Reuters)
Jet Airways had been incurring a daily loss of 21 crore and has debt and dues totalling at least 15,000 crore. (Reuters)

For 25-year old Jet, the next flight may be long away

  • Experts believe that Jet buying out Air Sahara in 2007 was a major mistake as the deal severely curtailed its ability to spend extra money to take on the competition effectively
  • Jet Airways faced its first major crisis in 2011-12 and subsequently sold 24% stake to Etihad for $379 million in 2013

NEW DELHI : Naresh Goyal-founded Jet Airways, India’s second largest airline till not too long back, suspended its all domestic and international operations Wednesday, after failing to secure emergency funding from lenders or any other source. The last flight operated Wednesday.

In a statement to stock exchanges, Jet said the company was unable to pay for fuel or other critical services to keep the operations flowing.

“Late last night, Jet Airways was informed by the State Bank of India (SBI), on behalf of the consortium of Indian Lenders, that they are unable to consider its request for critical interim funding. Since no emergency funding from the lenders or any other source is forthcoming, the airline will not be able to pay for fuel or other critical services to keep the operations going," the airline, that started as a taxi operator, said.

Lenders pushed Goyal out of the airline in March, after Jet Airways, saddled with huge debt, defaulted on payments to banks and aircraft lessors.

According to reports, Jet Airways had been incurring a daily loss of 21 crore and has debt and dues totaling at least 15,000 crore.

The suspension of operations would have a multiplier effect -- a whopping 16,500 employees stand to lose their jobs and thousands more working in ancilliary services will be at risk. Not only that, there could be a steep rise in air fares and an acute lack of capacity to cater to the rising domestic demand.

At its peak, Jet had 119 aircraft in its fleet and used to operate about 600 flights a day. It also ran the most successful international operations by an Indian airline. The disappearance of these would rob airport operators of landing and parking charges and other rental revenue from the airline. These charges account for roughly 10% of the ticket price, the bulk of which is on account of fuel.

As the dust settles, there are reports that the Directorate General of Civil Aviation will ask the airline for a "concrete and credible" revival plan, as well as extend help within the regulatory framework. The resolution, if any, is likely to be a long drawn-out process.

For an airline that provided world-class services for 25 long years, what went wrong? Let’s go to where it all started.

How did Jet Airways come into being?

Jet started as an air taxi service operator in 1993. Goyal set it up with a 20% equity contribution from Kuwait Airways and Gulf Air, both of whom exited later. Overseas operations kicked off with a Chennai-Colombo route in 2004. The airline launched a successful initial public offer (IPO) in 2005, and the stock listed on March 14, 2005 with an issue price of 1,100 a share. The scrip on Thursday closed at 165.75 on the National Stock Exchange. In 2007, Jet bought Air Sahara in 2007 for 1,450 crore. As of Thursday, despite the steep fall in shares, Jet’s market capitalization stood at 1,861.86 crore.

Shareholding pattern

Jet Airways had in February approved the conversion of loans into equity, which would effectively give banks 51% control of the airline. However, data from stock exchanges show that as of March 31, Goyal and associates, collectively held 51% stake in the airline. United Arab Emirates’ Etihad Airways held 24% stake and the rest was with public.

Market share

In the third quarter of 2010, Jet Airways became the largest airline in India with a passenger market share of 22.6%. In October 2017, it was the second-largest airline in India after IndiGo with a 17.8% passenger market share. It operated flights to 52 destinations. Just before its collapse, Jet Air had a market share of about 11%.

Fleet size

Jet owned 17 planes, mostly wide bodied Boeing 777s and Airbus A330s, while the rest were leased. It had a fleet of 119 aircraft as of December but the owned planes were collateralised against funds that were raised to finance their purchase. Before suspending operations, Jet was flying five aircraft.

The beginning of an end

Many in the industry believe that Jet buying out Air Sahara in 2007 was a major mistake. The deal severely curtailed Jet’s ability to spend extra money to take on the competition effectively.

The second mistake was the purchase of mixed fleet of 10 wide-bodied Airbus A330 and Boeing 777 planes. Unlike his peers, Goyal decided to have only 308 seats, much lower than the global standard of 400, in order to give his customers a premium offering. He lost a fourth of the potential revenue in the process.

It faced its first major crisis in 2011-12 and subsequently sold 24% stake to Etihad for $379 million in 2013.

What now?

A bidding process, being pursued by an SBI-led consortium of 26, is currently underway. Lenders had sought expression of interest from both strategic and financial investors to acquire at least 31.2% and up to 75% stake in the airline.

Six interested parties had submitted expression of interest. However, two of them -- a consortium that included ousted chairman Naresh Goyal and another consortium of private equity firms -- backed out. The remaining four--private equity firms Indigo Partners and TPG Capital, Abu Dhabi-based Etihad Airlines, and India's sovereign wealth fund National Infrastructure Investment Fund -- qualified as bidders, according to lenders.

The qualified bidders will have to submit their binding bids by May 10.

As said earlier, it will be a long wait.

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