It is official now. The news – India’s Jet Airways has been closed – has been globally reported. It is such a big blow to Indian aviation that it is taking an unusually long time to sink in among the stakeholders. The staff is in tears, the travelers are seeking refunds, the vendors are worried about their dues. The government agencies, too, are struggling. Meetings and more meetings while the time keeps ticking. This is being reported only for the sake of reporting.
Suddenly, the skies have become less congested as 119 airplanes operating more than 1000 domestic and International flights a day have been taken out. Till 2018, Jet accounted for almost 20% of passengers carried by Indian airlines. Though there is no sign of number of fliers getting reduced, the helpless flier has no option but to chose from the other airlines – IndiGo, Spicejet, GoAir, Air India – who have somehow managed to survive.
All these airlines are presently contemplating capacity addition. They have started acquiring new airplanes and they want to prepare themselves for the upcoming surge in demand. Spicejet may get airplanes which the lessors repossessed from Jet Airways as it operates similar Boeing fleet.
Despite Directorate General of Civil Aviation (DGCA) meeting with representatives of various airlines to keep fare hikes to “reasonable levels”, the ticket prices on some high-density routes have already risen up to 30 percent in last one month.
SpiceJet may add six more Boeing 737-800 NG aircraft on dry lease. SpiceJet shares rose as much as 15% to a 52-week high of ₹152. Jet Airways shares fell as much as 34%, to all time low. Its a sure sign of investors being unsure about a revival of Jet.
Jet Airways had to publicly announce the immediate suspension of all domestic and international flights. While stating this, Jet Airways also extended a string of excuses as the reasons behind this decision. It stated:
-the State Bank of India (SBI), on behalf of the consortium of Indian Lenders, that a request for “critical interim funding” would not be considered.
-since no emergency funding from the lenders or any other source is forthcoming, the airline will not be able to pay for fuel or other critical services to keep the operations going.
However, Jet Airways did not mention why its lenders refused to give it a lifeline.
Lenders did not release emergency funds.
Jet Airways had been trying very hard to procure funds. Jet’s lenders neither declined nor accepted its request for interim funding. Jet then sent a final SOS to lenders for a Rs 983-crore emergency funding to remain afloat. The SBI, on behalf of the consortium of Indian lenders, finally said no to Jet’s request for critical interim funding. Clearly, the lenders didn’t see any merit in such stop-gap temporary measures.
Jet was thus not able to pay for fuel or other critical services to keep the operations going. In practical terms, Jet closed down.
It takes a modicum of common finance sense to comprehend the reasons for lenders’ refusal to offer Jet a lifeline. Businesses, in general, and aviation business in particular, can not be run fully on borrowed money. Money begets money. The rich get richer; the poor get poorer are the fundamental Rules of Wealth.
To avail a fresh loan, especially of the order of Rs 100 million or more, there should not be any pending liability. That’s why the promoters must have deep pockets, a sound financial health, a successfully running business, minimum overheads and austerity measures in place. Unfortunately, these virtues were/are missing in Jet. Moreover, in case of Jet:
– A large section of the current revenues of the airline was being used to settle past dues,
– Rating agency ICRA had earlier downgraded Jet,
– The lenders were unsure if the funds given to Jet at this stage could ever be recovered,
– They always wanted firm assurance that this money that will not go down the drain,
– That assurance was missing, there was no clear visibility of cash flow.
Against this backdrop Jet Airways’ lenders ruled out emergency funding. Jet did chase a number of potential investors – from Etihad to Tatas. The company had tried every means possible to seek both interim and long-term funding. But, everywhere it was confronted with one natural question: ‘How, when, and how much will you pay back?’
And every time, on every occasion, needless to say, Jet cut a sorry figure. It had no answers, no strategy, no vision that could convince a willing investor. No wonder then, even its own lenders did not oblige Jet.
Instead of adopting professionalism, austerity measures, reducing overheads, and keeping prices in sync with operating costs, Jet used to blame rising oil prices and the increased volatility of the rupee, for making its condition worse. This defied logic.
Body blow for Indian aviation
Jet Airways, founded by Naresh Goyal in 1991, struggled to run its business well. Its only asset turned out to be its Brand Value. Unfortunately, the management could not capitalise on it. It just could not compete with newer budget airlines like IndiGo. As a result, it headed for self-destruction.
On April 17 2019, while the World was celebrating Mahavir Jayanti, Jet sank slowly and surely while many capable of doing something idly watched from sidelines and a few gleefully tried to exploit the opportunity. The misery of the employees and passengers were left to themselves to endure. The day will be marked as a dark day in Indian Aviation when it had to bear a massive blow.
The Silver Lining.
Jet Airways and its disoriented staff will now have to wait for the bid finalisation process by SBI and the consortium of Indian lenders. It will have to support the bid process initiated by the lenders.
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.
However, lenders do maintain that they are “reasonably hopeful” that the bidding process for the grounded airline will end successfully. Things will be clearer once the lenders are able to move ahead with the planned resolution process.
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.”
Everything is not yet lost for Jet Airways. During the last 25 years, Jet could create only one invaluable asset but unluckily it did not belong to Jet’s destiny. It seems to belong to someone else. Whosoever bids successfully for Jet, the new owner will get this asset as a ready made solid base to erect its empire. This would otherwise have taken for anyone several years to build. Every business person desperately yearns for it. Though, being an intellectual property, this can not be weighed in monetary terms, it is priceless in true sense of the word. In industry jargon, this is called ‘Brand Value”.