Jet Airways runs out of steam, lenders refuse lifeline, staff left in the lurch

Aviation

Its all over.

India’s longest-serving private airline finally shut down its operations after a journey which was a little less than 26 years. During this period, it went on to become the first Indian airline outside government control to fly overseas destinations. This event also marks the end of a year-long effort made by the airline and its lenders to save it from being shut down.

Jet will be revived only if it finds a new buyer who puts money in it.

This is one way of saying ‘its all over’ as there is no visible buyer as of now. Its shares have already crashed to its all time lows. At the time of reporting it was being traded at Rs 175 – down 27% after touching an intraday low of  Rs 159.

It potentially brings the curtains down on what was once India’s celebrated private airline. It also brings the curtains down on an era in which it broke into a state monopoly sector to become India’s largest private airline at one point.

It’s unclear whether the airline will ever operate, but if it does so, it will be under a new owner. This, at the moment, seems highly unlikely as lenders themselves are reluctant to put more money and they scurry to find a willing investor with deep pockets to pour new money into the airline.

Air India, and Vistara are the only two full service carriers left in  India. Jet Airways at its peak used to fly 650 flights a day, today it is nil. The shutdown does leave a huge question mark over the future of over 16,000 direct and 6,000 contractual employees.

The end was inevitable when its Chairman had said “Only 60 days left”. But the familiar dilly dallying stretched it somehow to 250 days.

DGCA Informed

Jet Airways said it had informed the Directorate General of Civil Aviation and the Ministries of Civil Aviation and Finance and other relevant government institutions of this course of action.

The DGCA on its website on Wednesday says that lessors had applied to de-register another four Boeing Co 737 planes. Overall, Jet’s lessors have, so far, sought to deregister and repossess at least 48 planes operated by Jet. Once deregistered, lessors are free to reclaim a plane and lease it to another airline.

Air India CMD Ashwani Lohani who is heading Air India for the second time, has stated in a Facebook post:

-The temporary closure of Jet Airways is a setback for Indian aviation and a sad day for all those in the business of flying to witness a fine airline closing shop.,
-While sustained mismanagement definitely contributed, the fact remains that in the entire aviation eco-system, it is the airline that invariably remains at the receiving end while all other stakeholders make money,
-We have in the past witnessed many airlines shutting shop and it is time to appreciate that the razor thin margins which airlines are forced to operate within a competitive environment, results in a scenario that encourages un-sustainability,
-the issue has no easy solutions, yet a solution needs to be found.

Views of Mark D. Martin, founder and CEO of aviation consultancy Martin Consulting Llc.:

-History and our business dynamics prove that once an airline shuts down in India, it never does restart,
-We were given to understand by SBI in explicit terms that they’d do all that is possible with ensuring Jet Airways does not shut down; and to think that no money was pumped in to resolve liabilities such as lessor outstanding, fuellers and salaries is unforgiving,
-With no aircraft, pilots, flight attendants and engineers, I certainly don’t see how any bidder will continue to see value in Jet Airways.

Lenders refuse emergency funds.

Jet Airways had on Tuesday sent a final SOS to lenders for Rs 983-crore emergency funding to remain afloat. The lenders till then had neither declined nor accepted Jet Airways’ request for interim funding. The SBI, on behalf of the consortium of Indian lenders, finally said no to Jet’s request for critical interim funding, without which Jet will not be able to pay for fuel or other critical services to keep the operations going. Clearly, the lenders didn’t see any merit in such stop-gap temporary measures.

Consequently, cash-strapped Jet Airways had no option but to cancel all international and domestic flights. “The last flight will operate Wednesday,” Jet said in a regulatory filing to BSE on Wednesday night while announcing the temporary shutdown.

The last flight 9W 2502 operated between Amritsar and Mumbai. In other words, it was all over.

Apparent reasons for lenders’ refusal to offer a lifeline.

– they were unsure if the funds pumped into the airline at this stage could be recovered later
– they always wanted some assurance that this money will not go down the drain,
– that assurance was not visible,
– emergency funding, thus, ruled out since no clear visibility of cash flow.

A large portion of the current revenue of the airline was being used to settle pending dues, IATA (International Air Transport Association) and credit card charges, etc.

Things will be clearer once the lenders are able to move ahead with the planned resolution process.

Although the lenders see no point of additional funding at this moment, the valuation of the airline will not change during the bidding process. Even if the services are grounded completely, the bidding process will not change.

Jet Airways will now have to wait for the bid finalisation process by SBI and the consortium of Indian lenders.

The airline informed BSE that in its response to the airline, the lenders have said, “The Expressions of Interest (EOI) have been received and bid documents have been issued to the eligible recipients today. The bid documents inter alia have solicited plans for a quick revival of the company. The bid process will conclude on 10th May 2019. We are actively working to try and ensure that the bid process leads to a viable solution for the company.”

Jet Airways will have to continue to support the bid process initiated by the lenders.