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BW Businessworld

Jet Airways: Grounded

India’s largest private airline Jet Airways has halted operations for now leaving its more than 20,000 employees stranded. Will Jet fly again?

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In the wee hours of April 18, some 100 km from Mumbai airport (somewhere over Gujarat) and at a height of around 29,000 feet, flight 9W2502, a Boeing 737-800, gets the clearance from the Air Traffic Control towers of Mumbai to decent and land at runway 09/27. It’s a routine procedure for hundreds of Mumbai-bound aircraft. But for Jet Airways, India’s largest private airline, this would be the last operational flight that originated in Amritsar some two-and-half hours earlier. An emotional crew posted on the social media pictures they had taken at the Amritsar airport. The Captain posted pictures of the Boeing 737-800 being pushed back from the terminal gate at the Amritsar airport.

On April 17, the Jet management had informed all stakeholders that it would be “suspending all its domestic and international operations” till the airline gets the necessary funds to pay its employees, and there is a new management that can set things right at Jet Airways. The airline owes around Rs 9,000 crore to lenders. It has not paid salaries for close to four months.

Since then, the spotlight has shifted to Jet’s potential bidders—Etihad Airways, National Investment and Infrastructure Fund, TPG Capital and Indigo Partners. Market is abuzz with rumours of active interest being shown by the Tata Group in Jet Airways. Public sector lenders led by SBI is carrying out the bidding process for the new investors. Lenders have told the airline the bidding process will conclude on 10 May.

Jet, meanwhile, is confident of finding new investors. CEO Vinay Dube, in an interview said, “We have four weeks for the bid process to get completed and we remain focused on it.”

On April 17 Dube had written an open letter announcing the suspension of airline services. “It is with deep sadness and with a heavy heart that we would like to share with you that, effective immediately, Jet Airways will be suspending all its domestic and international operations,” he had stated in the letter explaining the situation. “Late last night (April 16) we were informed by SBI, on behalf of the consortium of Indian lenders, that they are unable to consider our request for interim funding. Since no emergency funding from the lenders or from any other source was forthcoming, it would therefore not have been possible for us to pay for fuel or other critical services to keep the operations going,” the letter stated.

If Jet fails to take off, whatever the reasons may be, it would be the second full-service airline after Kingfisher to have ceased operations in the last decade. Jet Airways came into existence thanks to the persistent efforts of its promoter Naresh Goyal who had successfully operated his travel agency until then. It started operations as an air taxi operator on 5 May 1993, operating flight 9W321 from Bombay to Ahmedabad.

Jet Tussle
In October 2017, Jet Airways was the second-largest airline in India after IndiGo with a passenger market share of around 18 per cent. It operated flights to 52 destinations from its main hub at Chhatrapati Shivaji International Airport, Mumbai, and secondary hubs at Indira Gandhi International Airport, New Delhi and Kempegowda International Airport, Bengaluru. In January 2019, Jet had a passenger market share of 12 per cent and was operating most of its aircraft. By April 19 all its 124 aircraft were on ground (some being repossessed by lenders).

On March 25, Goyal, and his wife Anita, were forced to step down from the board after Jet had defaulted on payments. The lenders had also converted a substantial part of his pledged shares into equity. At the time Goyal had said that he agreed to sacrifice his control and interest in the airline with the sole aim of ensuring the Jet family’s lasting welfare. His exit was seen as a welcome move by lenders, as it paved the way for bringing in a new investor to revive the ailing airline. Since end-March new developments were unfolding each and every day at Jet. Take, for example, the plans put forth by the lenders for reviving the airline in the interim period. In early April it was estimated that the debt-laden carrier required around Rs 9,500 crore to stay afloat. It owes over Rs 10,600 crore to various lenders. Part of the turnaround plan included an infusion of Rs 3,800 crore by two investors. Additionally, between banks and public shareholders, there may be infusion of another Rs 1,335 crore. The balance may be raised via a rights issue with existing promoters and partners (Goyal family and Etihad) renouncing a part of their stake in a trust.

Etihad has been giving mixed signals. It said it will not be investing any more in Jet. On another date, it is reported that Etihad showed interest in pumping in a part of the funds. But nothing substantial worked out. As per the plans made by the lenders, after the rights issue, banks would have owned around 30 per cent in Jet while the two investors would have infused a total of Rs 3,800 crore in lieu of 44.5 per cent in the airline. That plan ensured the ownership of Goyal and Etihad would reduce to under 15 per cent. However, the plan could not materialise leading to the April 17 decision of suspending all operations of the airline.

Despite his ouster from the Board, Goyal made an attempt to come back through the bidding process initiated by the lenders to find a new investor. “Some of the other bidders such as Etihad were not comfortable with Goyal in the fray,” a source said. Goyal’s exit has come has a relief to the lenders.

It is obvious that the space vacated by Jet has helped the low-cost carriers. Jitender Bhargava, former Executive Director, Air India, said on Twitter: “The biggest threat to the economic viability of airlines is the quest of some airlines for garnering market share at the expense of profitability. With huge orders for aircraft placed by LCCs (low-cost carriers), which manage to recover costs, the situation is unlikely to improve for FSCs (full-service carriers).”

Employees in Dire Straits
The suspension of Jet operations has had a dire impact on the livelihood of its massive workforce. The unfortunate circumstances of the skilled and trained workforce of Jet has thrown open a window of opportunity for operational carriers. Recruitment experts predict a cut in the compensation packages of pilots, cabin crew and technical staff of Jet Airways who are being poached in plenty by rivals. “A pilot of Jet is being offered 20-30 per cent lower packages while engineers are being offered jobs at an average cut of around 40 per cent from what they were getting at Jet,” says a Jet insider requesting anonymity. It should be noted that apart from Jet Airways that has pilots operating the Boeing aircraft, only Air India Express and SpiceJet operate Boeing fleets in the domestic routes. “There is a demand for co-pilots and pilots but the offers coming in are contractual and not of a full-status employee,” said a pilot with Jet who has managed to secure a job with one of the rival airlines. “The contracts are not offering the same compensations as what we were drawing in Jet. They are significantly lower,” he said.

According to Minister of State for Civil Aviation Jayant Sinha, the Jet Airways crisis “just needs time”. “The employees of Jet will be absorbed by other entities in the aviation space. Banks have to make decision in their commercial interest,” Sinha said recently in a TV interview.

Meanwhile the airport slots of Jet Airways at Delhi, Mumbai and Bengaluru are now being allocated to SpiceJet, IndiGo and others. Airport slots are key for an airline as they determine its ability to land, take-off and park its aircraft. “Once rival airlines get the Jet slots, will they hand it over once the airline gets a new owner?” asks an aviation expert. “Will the Government of India help Jet Airways by returning its airport slots in May or June or whenever the airline is ready to fly?” There are no simple answers to such questions.

By end-May India will get a new central government. It is widely expected that till the new government is sworn in, a lot of the questions around the revival of Jet Airways will remain unanswered including setting the precedence of getting into the business of private operators when it itself has not found the solution of fixing Air India, country’s national carrier, a debt-laden airline operating largely on the financial support given by the central government. Watch this space for more.

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