A piece of sad news on the economic front for the Goyals, after drowning in debt and undergoing major action plans the country’s biggest full-service airline, Jet Airways is selling its majority stake for 1 cent (less than INR 1 rupee).
The History & Objectives of Jet Airways
In 1974 Naresh Goyal (currently chairman of the Jet Airways) borrowed some money from his mother and started his own travel agency along with his brother Surender Goyal & named it Jet Air. Jet Airways, when born, took advantage of the big bang of the Indian economy and then started availing the Open Skies Policy announced by the Government of India in 1991 to set up its operation of scheduled air services within domestic sectors of India.
Finally founded and commenced its operations on May 5, 1993, Jet Airways has consistently been in one of India’s top three airlines in the past decade & recent years.
The objective of the business was to represent sales and marketing to foreign airlines in India.
The Financials and Share management of Jet Airways:
The second-largest airline in India after Indigo with a 17.8% passenger market share (However, In the third quarter of 2010, Jet Airways became the largest airline in India with a passenger market share of 22.6%)
The following represents the key trends for Jet Airways & its subsidiaries:
- It has flight connections to 67 destinations from its primary hub at Chhatrapati Shivaji International Airport and secondary hubs at Indira Gandhi International Airport and Kempegowda International Airport
- The company is named in the Bombay Stock Exchange where 51% of the stock is owned by Naresh Goyal through his company Tailwinds International and the remaining 49% by other investors.
- Jet Airways provides services to 67 destinations with 47 domestic and 20 international destinations in around 15 countries across major continents of Europe, Asia, etc. The airline has its primary hub at Mumbai and secondary located at Bangalore and Delhi.
- It’s now 24 per cent owned by Abu Dhabi’s Etihad Airways and controls 13.9 per cent of the Indian market.
- Jet Airways also has connecting flights to international destinations including London and Singapore
Cause of the Fall!
Jet Airways is holding 72.99 billion rupees ($1 billion) of net debt, excluding loans for which it has defaulted.
Yes, you heard it right!
When budget carriers started clasping the market post-2005, offering only basics and not much add on facilities yet on-time flights, Jet Airways followed in line & started to drop its fares. Some to way below cost as well.
Plus, the provincial taxes of 30 per cent on jet fuel added to its expenses, and the Indian travellers who prefer less budget then refused to pay the premium price for onboard meals, entertainment & miscellaneous.
The big mistake was made when Jet Airways offered additional amenities mostly for free whereas other budget operators, with full-service airlines, did not. As a result, Jet Airways lost money in all but two of the past 11 years and has 72.99 billion rupees ($1 billion) of net debt.
The airlines also defaulted on loans that were due by Dec. 31, 2018, and has delayed payments to staff and property owners.
Any Solution Roadmap?
1. The current needs and methodology of Jet Airways to recover are:
- Jet Airways needs some 85 billion rupees to stand up on its feet again.
- It will be able to do that only through share value implantations, debt rearrangements and multi-asset dismantling, for eg; selling aircraft and then leasing them back.
- Its state-owned lenders have made this bailout plan and by that, they will give the airline some time to arrange fresh equity.
- The proposed bank deal is just a conversion of debt into shares so debt levels will come down only by 1 rupee once the exercise is completed.
In short, Jet Airways need to streamline a lot of things and follow rules to survive in the industry fight at least!
2. BLPRP: The Saviour Plan?
The process which applies to those companies which have a negative net worth is called Bank-led provisional resolution plan, or BLPRP, and it needs to be approved by all lenders, the board of Etihad, founder Goyal, and a banking industry group.
- A group of bank lenders led by State Bank of India have proposed to take a 50.1 per cent stake for 1 rupee via the issuance of 114 million new shares.
- This is budding under a framework outlined by the Reserve Bank of India since 2018.
- The structure, however, is expected to be rough and temporary, allowing the airline to raise equity from investors, which in turn would alter the shareholding pattern.
3. Engagements with Business Partners shall help?
Jet Airways management has given very less detail but said the bank lenders will also fully participate in an equity issuance round post the already allotted 114 million shares. However, they are still in talks with Etihad and Tata Group.
- Jet Airways has been in talks with Etihad and the Indian Large Corporation Tata Group, while Goyal has also offered to invest in as much as 7 billion rupees if he retains his 25 per cent stake.
- Etihad is also planning to invest about 14 billion rupees and continue to keep a stake below 25 per cent, while India’s National Investment and Infrastructure Fund may bring in as much 13 billion rupees.
The Urgency and connection with the Elections 2019!
The Prime Minister of India, Mr Narendra Modi, looks forward to the upcoming election within a few months, and the collapse of an Indian airline with around 23,000 jobs getting impacted put a big mark in his business-management image and catalyze few ongoing criticisms that he’s failed to deliver on promises about creating jobs.
The Broke Jet & Etihad Affirmations!
After Etihad sought SBI’s involvement in reaching out to the aviation ministry in pursuing the entire matter, & relevant approvals, Etihad Airways CEO Tony Douglas said “Without this approval, we are not willing to invest a single penny further,” confirmed sources.
He also recently communicated to the lead lender that they will not pay a rupee more than INR 150 a share amount for suffusing funds and asked for a complete exit by Naresh Goyal and his family from any management role in the Indian business carrier.
The Abu Dhabi-based giant Etihad has also:
- Dismantled few engines and crushed thousands of positions.
- They have put full stops on costly expenses and expansions after almost $3.5 billion in losses in two years.
- After the strategy of buying poor airlines around the world failed, it has also gashed orders worth $21.4 billion for Boeing Co and Airbus SE jetliners.
Etihad’s terms & conditions have definitely put Jet, along with Indian banks and authorities, in a paradoxical situation from which they cannot escape because of complex rules often referred to as a Catch-22 situation.
Any concern for travellers?
This news is certainly going to affect a whole lot of travellers who have been in a travel relationship with Jet Airways enjoying its multi-services at a really affordable rate.
As of now, Mumbai-based Jet Airway’s disappearance (affecting the frequency of planes) is most probably to increase airfares because Jet Airways flies to around 37 destinations across the country.
Now, If you are worried about your upcoming trip and itinerary, here are helpful guides to the worlds best airlines.