A poor pilot can make a bad problem worse. Naresh Goyal’s Jet Airways has spent the week denying it is short of cash, in talks to sell a stake, or planning large-scale job cuts. Yet the Indian carrier’s failure to get its earnings signed off on time by its audit committee on time late on Thursday, pending the closure of unspecified matters, suggests profound financial problems.
The whole industry is suffering with high costs and low fares, but mixed messages won’t help reassure investors that the company is on an upward flight path.
Shares in India’s second-largest airline have fallen for much of 2018, but they crashed further this week after local media reported Jet had given pilots an ultimatum on a pay cut, warning them it only had enough cash to last 60 days.
‘Chairman feels guilty’
Things turned bizarre on Thursday, when Mr. Goyal, chairman and majority shareholder, declared at the annual general meeting that he felt guilty and embarrassed investors had lost money.
The firm set up a committee to counter negative publicity. Hours later, Jet said it could not yet publish first-quarter results. Jet is in a poor position to keep investors in a holding pattern.
The airline is loss-making, has seen its domestic market share shrink to barely 13% in June, and is less punctual than rivals on local routes. Its $1.2 billion of net debt, mostly dollar denominated, means it is in worse financial shape too.
ICRA downgraded the airline’s credit rating in May, citing the company’s inability to pass on fuel price increases, despite large repayments due each year for the next three years.
If Jet, which is already partly owned by Abu Dhabi’s Etihad, really isn’t in talks to sell a stake to help recapitalise the business, then it will need to look elsewhere to refinance debt.
The alternative may be to sell and lease back more aircraft, as ICRA suggests. It could also be the first to break from the Indian stack and hike fares, which have remained almost flat for two years despite higher fuel costs, as carriers add capacity in what’s now the world’s fastest-growing aviation market. That would risk a further erosion of market share, but may be inevitable. Mr. Goyal has to restore confidence fast.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
