airline business

Is Jet Airways Headed for a Kingfisher Like Collapse?

Jet Airways
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Overview.

Ever since the Jet Airways Chairman Naresh Goyal issued the statement – that we have only 60 days left – more than 70 days ago, there have been various attempts to control the damage. Jet has proposed stake sale in loyalty programme and equity infusion in the airline. There have been talks with private equity firms over equity infusion in Jet Airways through preferential allotment of shares.  Discussions are underway and due diligence is being carried for stake sale in Jet Privilege Private Limited, but no firm offer has yet been given. (Read: 60 Days left)
Jet Airways flight
Jet Airways has been on record saying that the organization is effectively investigating every conceivable chance to pivot the business as affirmed at its 27 August board meeting. The means incorporate cutting expenses, equity infusion and monetizing Jet Privilege.

Current Crisis.

However, post demonetization in November 2016 and PNB like scams in 2018, lenders and investors have become more watchful. PE firms like Blackstone and TPG Capital are giving a rethink over their interest in Jet Airways loyalty program. The fundamental concern is around Jet Airways money related condition. The company struggles to pay its staff its salaries. Its share prices are falling freely. Rising oil prices, weak rupee do not help the company in any way. A loyalty program can not have any esteem if the Company’s survival itself is in peril.
Jet Airways had a meteoric rise but its catastrophic fall today has stunned the aviation industry as a whole. Even Boeing, the leading aircraft maker, has shown its concerns over Jet Airways’ situation which is presently grappling with several financial woes. Jet Airways has been a key customer of Boeing for over 25 years. The airline had been operating Boeing mostly since its inception. Today it has placed orders for 219 Boeing 737 MAX planes and has already taken delivery of five of these planes.
Jet Airways harm control is presently confronting firm difficulties and experts say that the proposed stake deal in Loyalty Program won’t be enough to hold over the present money related crisis. Radical advances will be required to be taken for the survival of the airline. An upgrade of business model along with fleet and network decrease might be required to save the airline from collapse, they say.

Experts’ comments.

“Selling part of its loyalty programme will temporarily boost the coffers, but that’s all it will do. It’s a plaster over a much bigger wound. What is needed is a huge equity infusion – that’s unlikely to come given the precarious state of affairs. Over to plan B – a full and immediate overhaul and retrenchment of size to save itself from a potentially far bigger collapse,” said Saj Ahmad, chief analyst, StrategicAero Research.

“Desperate situations require desperate measures. The sale of the remainder of the loyalty program will be insufficient to put Jet Airways back on the right path. The airline business is cash intensive and if Jet is unable to drastically reduce both fixed and variable costs, it might not be here for long. Management must consider shrinking its network, reduce the fleet and cancel delivery of new aircraft for next year,” said Steve Forte, former CEO of Jet Airways.

The Crisis, is it a beginning of the end?

The airline has been defaulting on staff salaries for the last 3 months or so. Even its pilots threaten its management of “non-cooperation” over delays in the payment of their salaries. One incident of a pilot’s error is under investigation. The pilot had ‘forgot’ to switch ON cabin pressurisation. It has also offered its cabin crew 50-day leave without pay.

It is now well known that the airline is facing a deep financial crisis and it shows up even more when the company comes up with excuses like high fuel cost, depreciating value of rupee, or fierce competition from its rivals. The current severe cash crisis has also led Jet management to ground two of its wide-body planes – an Airbus A330 and a Boeing 777. The groundings have resulted in further loss in business and changes in aircraft being deployed on Mumbai-Singapore and Gulf routes.

The Company has already lost Rs 10,360 million and Rs 13,000 million in the March and June quarters respectively. Neither a lender nor an investor sees any promise in Jet’s revival. Its total liabilities from banks have grown to over Rs 86,000 million and continues to swell. Mere airline operations of its fleet can in no way wipe the debt out. This is a situation similar to that of Kingfisher just prior to its collapse.

Jet Airways Chairman Naresh Goyal possesses 51% stake while Etihad Airways has 24%. Fresh equity infusion in the Company depends on the issue of control. Goyal has been reluctant to weaken his management control in the past and PE speculators won’t like to invest if they see no chance of doing anything with the running of the organization.
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Hope to take – off again

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