The end of the runway

Jet Airways seems to have approached the end of the runway. With banks unwilling to throw in more money to rescue the airline and no saviours visible on the horizon, it seems destined to follow the flight path of Kingfisher Airlines, which bit the dust in 2012. From over 120 aircraft, the storied airline is now down to just five. Almost all its leased aircraft have been repossessed by lessors. On Wednesday night, the airlines decided to temporarily suspend all its flights. Its experienced pilots have either moved to competitors or are queuing up before them now. And the Jet brand, which was once reputed, stands tarnished with passengers complaining of cancelled flights and delayed refunds.

Emergency funding

Jet Airways has been pleading for emergency funding of at least ₹400 crore. But banks have refused to budge, and rightly so. From their perspective, more lending to the sinking airline would simply mean squandering money. Emergency funding is a viable option when there is a high possibility of the borrower’s business bouncing back and enabling repayment of the money borrowed. That is not the case with Jet Airways now. It was a different story a couple of months ago when the banks did attempt a bailout package for the airline. But the descent in the airline’s fortunes since then has been rapid. Only a foolhardy banker would write a cheque for Jet now. Besides, given the atmosphere of political uncertainty, bankers would think twice before trying to save a private airline that is probably beyond rescue. No banker would like to get in the crosshairs of a new government. As it is, some are asking why banks should try to rescue the airline instead of taking it to insolvency court, which is the prescribed route for such cases.

It is interesting that the present government, despite all the pressure that has been brought to bear on it, has kept away from all the action. Bailing out a private enterprise with public money is something that it would not want to be seen doing at this point in time.

The lenders consortium is still trying its best to find a suitor for the airline. They have invited expressions of interest from prospective bidders and will shortly call for bids. But what will the prospective buyers bid for? The airline is now down to about 16,000 employees, has a debt overhang of ₹8,414 crore (as of March 31, 2018), and accumulated losses of over ₹14,000 crore. Its routes and departure slots at major airports have been appropriated by competitors, albeit on a temporary basis. If Jet Airways does not show up on the radar again in full force before the end of the summer schedule in October, the routes and slots will be foregone.

For any prospective bidder, the attraction is not just the number of aircraft that the airline flies but also the routes, departure and landing slots, and parking rights. Besides, the brand loyalty, of course. Jet scored high on these accounts, but not any more. In short, Jet today has more liabilities than assets to speak about. So, why will any serious bidder agree to take over the airline now?

Stepping down

The fact is that the rescue act was mounted too late. That the airline was in trouble was known since October, but the desperation set in only in February. Part of the blame for the delay lies with founder and chairman Naresh Goyal, whose reluctance to part with control over the airline put off not just prospective investors such as the Tata Group (which admitted to have been in talks for an investment in Jet) but also Jet’s partner, Etihad Airways. In the event, Mr. Goyal’s decision to step down probably came too late in the day.

Mr. Goyal is a veteran of many a battle in the Indian skies and his influence over successive governments since the mid-1990s ensured that the skies were kept clear for him. The 5/20 rule (a government norm under which national carriers are required to have five years of operational experience and a fleet of minimum 20 aircraft to fly overseas) was clearly designed to help Jet. So were the restrictions on foreign investment in domestic carriers, until Jet decided to invite Etihad as a partner.

But Mr. Goyal has run out of options now. After all, what goes around comes around. Jet Airways was a superb brand and had built strong loyalty among fliers. It is sad that it has to go. But more unfortunate is the plight of Jet’s employees, who will now be forced to work with competitors at lower pay scales, if at all they find openings. And of course, fliers, who are already forking out 20-30% extra on fares thanks to the fall in airline seats.

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Printable version | Jan 19, 2021 2:00:36 AM |

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