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Sanjiv Kapoor, the new CEO of Jet Airways, frequently underlines his AvGeek credentials—he is a plane-spotter, passionate about aviation.

On Twitter, Kapoor would explain the difference between a ‘livery’ and a ‘decal’. Livery refers to the overall paint scheme on an aircraft; a decal is a sticker added to the livery. “The detail-oriented #avgeek in me cringes to hear a decal being referred to as a special livery".

On certain days, he would post photographs of planes from airports that he visits. In Montreal, he spotted the ‘bandit’ or ‘racoon eye’ cockpit windows, “popularized by Airbus and thereafter also Air Canada". And recently, he posted a collection of aircraft engine images he took over the years. “For me, a window seat is always the first choice!" he said.

Jet Airways now needs him in the pilot’s seat, the cockpit, if the airline has to make a stunning turnaround from being comatose for over three years.

On 17 April 2019, flight S2-3502 left Amritsar at 10.18 pm and landed in Mumbai shortly after midnight, at 12.22 am. That was Jet’s last flight. The company was unable to pay for fuel and other critical services, entering a long list of grounded airlines. In the past decade, airlines such as Kingfisher Airways, Air Costa, Paramount Airways, Air Pegasus and Air Carnival suspended operations, never to fly again.

Team turnaround
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Team turnaround

Few expected Jet, founded in 1992 by businessman Naresh Goyal, to fly again until the Mumbai bench of the National Company Law Tribunal (NCLT) in June 2021 cleared a resolution plan to revive the airline under new ownership. A consortium of UAE-based businessman Murari Lal Jalan and British financial advisory and asset management company Kalrock Capital was picked.

Last month, Jet received the Air Operator Certificate (AOC) from the civil aviation watchdog, the Directorate General of Civil Aviation (DGCA), which allows the airline to resume scheduled commercial flight operations. The company now hopes to start flying in the September quarter but details on its plans remain rather sketchy.

Jet is yet to announce its product offering, routes, slots, frequencies, reservation system, and aircraft type among other things typically made public by airline companies months before starting operations.

“For all those asking about our aircraft and network plans, as I keep saying, we are not sitting idle. We are in the final stages of firming up the plans, and will reveal details soon. This is a marathon, not a sprint, good things come to those who wait," Kapoor, who was hired in March this year by the consortium, tweeted on 14 June.

That confidence is welcome, and necessary. But the launch plans do coincide with a long list of macro and micro headwinds. Crude oil prices, globally, have soared; the Indian skies are getting more competitive with a new entrant, Akasa Air, waiting to fly; the market leader, IndiGo, is aggressively deploying more capacity; the Tatas are consolidating and putting in place strategies for future market gains.

What sort of a story can Kapoor script at Jet 2.0?

Investors, rest of the industry, AvGeeks and flyers are probably impatient to know. Recent developments, meanwhile, have certainly enthused investors. The company’s scrip had plummeted to 33 a share in June 2019 on the BSE. On 15 June, the stock closed at 104.05.

Miracle man & his team

There’s no such thing as a ‘miracle turn-around’ in the airline business, Kapoor said at a TED talk in January 2020, detailing the strategies that led to the revival of another carrier, SpiceJet Ltd.

In 2013-2014, SpiceJet was on the brink of closure. Kapoor was brought on board as the chief operating officer by SpiceJet’s former promoter, Kalanithi Maran.

“It’s a lot of hard work, planning, and real perseverance (that) led to the turnaround," he said during the talk.

While mounting losses had impaired SpiceJet’s ability to pay its creditors, including oil marketing companies, a similar scenario played out in 2012 at Kingfisher Airlines. “The difference (with Kingfisher Airlines) was that we paid our staff," Kapoor pointed out during the talk. “Staff came back to work the next day because they never gave up hope," he added.

Some of the attributes Kapoor refers to in the talk will play an outsized role at Jet Airways, too. Known to be a tough task master and someone with a knack to micromanage at work—like proof-reading tag lines and marketing pitches—Kapoor’s appointment at Jet has now brought about an urgency in the airline’s revival plan. Certainly, in hiring.

The airline has hired over 200 employees and is aggressively hiring more. The CEO recently listed what he is looking for in his new hires: “Passion; attitude (must be positive. No “chalta hai" casualness); smarts; ability to communicate complex ideas simply; irreproachable integrity; grooming and personal habits". For marketing roles, he doesn’t prefer the “boring types".

“2/3 of staff at Jet 2.0 are former Jet 1.0 staff. All else being equal, former Jet 1.0 staff (are) getting preference in hiring. Yes, promoters and management and funding are new. That is what is reviving the airline, creating jobs," he tweeted last month.

A regular feature since his appointment has been morning meetings with the airline team preparing for the launch.

Apart from Kapoor, the leadership team includes Vipulala Gunatilleka, the chief financial officer. Gunatilleka played a crucial role in the turnaround of the loss-making national carrier of Angola, TAAG Angola Airlines, where he served as the CFO and board member between 2015 and 2018. Ankit Jalan, the nephew of the lead member of the Jalan-Kalrock consortium Murarilal Jalan, is a member of the monitoring committee for Jet.

The take-off plan

Kapoor’s strategy will be to start small and gradually scale up over time.

What aircraft will the company opt for?

“In the near-term, major suppliers don’t have aircraft that we can order directly from the factory. So, fleet, at least for the initial year or so, will be leased. But, there’s sufficient availability of aircraft from lessors, both brand new and older ones. There are lots of aircraft that we can consider. We will decide what’s best for us given our needs, and cost benefits," Kapoor told Mint in an interview in April.

The CEO refrained from citing a number. “We know it’s important to reach a certain scale quickly as it is a very scale-driven business. We don’t intend to stay in a small start-up size for too long. We have plans to scale up fairly quickly, but at a manageable scale," he said.

Kapoor’s plan is to operate a hybrid model, which is not a traditional full-service model that he believes has outlived its usefulness. “Pretty much all full-service carriers operate a hybrid model. We intend to have a product that is in time with current customers’ needs, and reflects changing customer preferences as well," he said without elaborating further.

Industry veterans feel a lot would depend on the new promoters’ ability to pump in cash periodically to keep the airline venture running—aviation businesses are cash-guzzling and take time to yield returns.

Kapoor told Mint that the Jalan-Kalrock consortium has committed $180 million of initial funding for Jet Airways. A $60 million dollar liability, as part of the NCLT process, has been passed on to the new promoters. After accounting for this liability, Jet would have $120 million to fund the airline operations during the first year after its revival.

“This doesn’t include SLB (proceeds from Sale and Leaseback of aircraft). We will have access to SLB cash flows over a period of time on top of the promoter funding (after Jet 2.0 places new aircraft order)," Kapoor said.

In a sale and leaseback transaction, the owner sells the aircraft, and then takes it back on lease from the buyer, usually a leasing company. Such a deal typically removes the aircraft, and its associated debt, from the carrier’s balance sheet. Airlines often place large aircraft orders that entitle them to huge discounts. So, after conducting SLBs, they usually end up making money on the aircraft.

The airline also plans to sell older assets of Jet—old wide-body aircraft—to generate additional funds. About 11 aircraft were passed on from the old Jet. Of this, eight are wide-body aircraft typically used for long-haul international travel. Kapoor can sell them because Jet 2.0 will not fly international routes immediately. Also, some of the older planes are not as fuel efficient as the new models.

“To succeed in an intensely competitive market, we advise clients to have capitalization levels in the range of $70 million-$100 million," Satyendra Pandey, managing partner at aviation advisory firm AT-TV, said. “This is in terms of committed capital and can be structured in different ways," he added. By this measure, Jet appears comfortable at the moment.

“What works for Jet 2.0 is that it is starting with a clean slate (zero debt) and is in a favourable position to negotiate cheaper contracts with vendors (after the pandemic). It will allow them to minimize cash-burn till the airline reaches a substantial scale and begins to eye profits," an industry veteran who didn’t want to be identified, said.

Headwinds ahead

Nevertheless, the challenges before the airline appear daunting, too. Crude oil prices because of the Ukraine war have skyrocketed and rising airfares can stymie demand. The war-related headwinds come after two years of the covid-19 pandemic that battered both aviation and hospitality industries. The Indian aviation industry is slated to report net losses to the tune of 14,000 crore- 16,000 crore during 2022-23, and would require incremental funding of about 20,000 crore- 22,000 crore between FY 2022-2024 to pare losses, rating agency ICRA estimated.

A second headwind for Jet is the availability of marquee slots in major airports.

As things stand, Jet is unlikely to secure key slots at busy airports like Mumbai and New Delhi that it held at the time of its grounding in 2019—these slots were re-distributed among other airlines. It is also unlikely to get all the flying rights (to top international destinations) that it had in 2019. The DGCA has so far rejected Jet’s claims to its earlier slots and flying rights.

Failure to obtain key slots will mean that the airline will have limited connections to the most popular metropolitan airports in the country.

“Securing AOC is just one of the many battles for Jet 2.0," Ameya Joshi, independent aviation analyst and the founder of the aviation website NetworkThoughts, said.

“The airline has to look for good talent, slots, parking and more. The task will be uphill because it will compete with a resurgent Air India, upcoming airline Akasa and a dominant market leader IndiGo. Nobody welcomes competition with open arms. IndiGo and every existing player will try to protect their turf," he added.

Another airline executive who didn’t want to be identified felt that Jet 2.0 is starting with a competitive disadvantage.

“Jet was able to capture a significant market share earlier because of its service model. Back then, there weren’t many competitors. To bring back loyal Jet flyers to the airline, Jet 2.0’s offering will have to be unique," the person said.

Kapoor, who began his aviation career 24 years ago at Northwest Airlines, will be well aware of this.

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