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Home / Opinion / Views /  Opinion | Jet Airways’ Naresh Goyal at a crossroads

With ballooning debt and rising costs, Jet Airways founder and promoter Naresh Goyal is left with few options and little time to save the airline. He can take up an investment offer from Etihad Airways, which owns 24% of Jet Airways, and relinquish control of the airline he started about 25 years ago. Alternatively, Goyal can rush to gather his own funds or watch Jet shut shop like erstwhile rival Kingfisher Airlines did about six years ago. However, he knows it won’t be an easy ride, for the carrier posted three straight quarterly losses of more than 1,000 crore each and is saddled with a debt of 8,052 crore as of end-September. Goyal may have his own reasons, perhaps valid, to thwart any offer that seeks to invest in his crown jewel, which he started in 1993 after about two decades of sales and marketing work for foreign airlines in India. The offers from Etihad and the Tata group come with riders, the core being the transfer of management control. However, Goyal does not have much time on his hands. Jet Airways has delayed payment of pilot salaries amid a crippling cash crunch caused by rising costs and a bruising fare war. On 31 December, the airline defaulted on interest payments to a consortium of lenders led by the State Bank of India. Analysts say Jet needs to immediately raise at least $250-300 million to pay off lenders and vendors. It would need to raise another $450-500 million by the end of 2020 when some of its overseas debt matures, analysts say.

Jet’s predicament echoes the dire scenario of India’s aviation industry. Several airlines mushroomed after the 1990s when the government liberalized the aviation sector. Only a handful have survived. India has been ranked as the fastest-growing aviation market globally and airlines here have ordered planes worth several billions of dollars in the past few years. However, mostly everyone, other than the airlines, seems to be making money. Crisil Ltd, the ratings company, expects Indian airlines to post their steepest loss in a decade this financial year. The airlines will need equity infusion of about 35,000 crore over 3-4 years to reduce their debt, rating agency Icra said in November. There are several factors that can be blamed. The weakening of the rupee last year has swollen airline costs as most non-fuel payments, such as aircraft maintenance and lease rentals, are dollar denominated. There is also the high cost of fuel, about double that of Dubai or Kuala Lumpur. The Union government last year cut excise duty on fuel from 14% to 11% but a much-needed move to bring fuel under the ambit of the goods and services tax, something which would have helped lower costs, is yet to happen.

The airline industry is traditionally a heavy capex business. For airlines working on wafer-thin margins, any increase in cost acts as a double whammy, especially when they are forced to offer lower fares in an intensely competitive environment. Goyal is now at the crossroads with some tough choices to make, something that can either sustain or shutter Jet Airways. He has to choose whether he wants to give up the driving seat or continue frantic efforts for cash to run India’s second-largest airline by market share.

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