Lenders to the crisis ridden Jet Airways India Ltd. did not see any reason to infuse more money, they finally refused to bail out the cash-strapped carrier. The bankers have confirmed that there’s no money coming in for now. Though the matter has not yet officially been disclosed, the signs are clearly visible.
Jet Airways executives, including operational heads, are meeting in Mumbai Tuesday to take a call on complete halt of operations.
Jet’s shares crashed as much as 18.5 percent on Tuesday and closed 8.1 percent lower at Rs 240.5. S&P BSE Sensex advanced nearly 1 percent.
The airline, which was forced to ground 10 more planes last week and suspend international flights, has failed to pay lease rentals on time. Its pilots have been agitating over non-payment of salaries and their union had threatened that they would stop flying.
No spokesman for the airline was available to make a comment.
Jet Airways, founded by Naresh Goyal, broke into the monopoly of state-run Air India Ltd. in the early 1990s as a full service carrier. It is said that it went into a tailspin when an array of LCC budget airlines- IndiGo, Spicejet, GoAir – sprung up and started offering ultra-low fares which hurt its business very badly. This, however, in the final analysis is no excuse for its failures and it does not reflect the truth.
Collapse of Jet Airways
Jet Airways did avail loans from various domestic and overseas sources but it never earned enough nor it could stand up to the business competition. Jet never contemplated going the LCC way. It did not observe austerity in hours of crisis, and it did not make full use of its Brand Value, which today is its only asset left. As a result, the inevitable happened. Jet Airways never showed any sizable profits and today it finds itself immersed deeply in a mountain of debt and liabilities. When put up for sale, Jet did not find any takers. Today, even its own lenders see no viable reason in putting further funds in Jet. It’s now burdened with more than $1 billion in debt and unpaid dues to its employees and leasing firms. This in no way can be cleared by operating Jet under the current circumstances.
The collapse of Jet Airways threatens the loss of about 23,000 jobs and is reminiscent of the fate suffered by Kingfisher Airlines Ltd., another indebted airline that had to be grounded. Vijay Mallya, its flashy fugitive founder, is still being tried to be extradited from London by the Indian government.
Jet Airways’ crisis also comes at an awkward time for Prime Minister Narendra Modi who’s rising concerns of unemployment and seeking a re-election bid in national elections that started April 11. The government had tried to help the ailing Jet Airways by asking other carriers to consider taking over a few of its aircraft.
“The government’s job is to protect the consumers and the sector and not necessarily an individual company. The promoters knew that the airline was in financial trouble almost a year back, yet they have been playing hard ball and negotiations have been stretched to the point that finding a credible buyer is going to be a real challenge,” said Dhiraj Mathur, partner, PwC.
Business failure is not crime.
Companies do get closed. Employees do get retrenched, but the show goes on. In case of Jet, this situation was predicted at least five months ago. Jet Airways has been ruined by gross mismanagement. Such an incompetence hurt thousands of Jet’s employees and other stakeholders as airline position deteriorated beyond repair. Entrepreneurs indeed need to be promoted. But when promoters’ incompetence leads to destruction of large businesses with stakeholders, it becomes prudent to stop further destruction as it only hurts the overall economy. We have been seeing this during the last few years.
Up till now, the lenders were fighting shy of taking bankruptcy procedures and they did not let the Law take its own course. It is speculated in aviation circles, that the PMO will intervene, acquire the airline and hand it over to some other company like Tata or Spice jet – something like what was done in Satyam case.