ADVERTISEMENT

Another Indian Airline Collapse? Jet Airways’ Struggle for Survival

Can Jet Airways Survive Boeing 737 Max Fallout?

(Bloomberg) -- Jet Airways India Ltd., once ranked the nation’s biggest airline by market value, is on life support. A bailout plan proposed by its lenders is in limbo, it grounded its fleet (at least temporarily), staff salaries are delayed and it’s missed payments to banks and leasing companies. The clock is ticking for one of the country’s most visible companies at a sensitive time, with India’s general election under way. Jet Airways’ survival is hinging on whether investors can be found to take on its loss-making, debt-ridden business.

1. What is Jet Airways?

Consistently one of India’s top three airlines over the past decade, Jet Airways was founded by ticketing agent-turned-entrepreneur Naresh Goyal after India ended a state monopoly on aviation in the early 1990s. It’s part-owned by Abu Dhabi’s Etihad Airways PJSC and controlled 11.4 percent of India’s market, one of the world’s fastest-growing. As well as plying domestic routes, Jet Airways had international destinations including London and Singapore on its schedule.

2. Why is it in trouble?

As a slew of budget carriers started flooding the market in the mid 2000s, offering no-frills yet on-time flights, Jet Airways began dropping fares, some to below cost. Provincial taxes on jet fuel as high as 30 percent added to its expenses, while price-conscious Indian travelers refused to pay a premium for on-board meals and entertainment. Unlike budget operators, full-service airlines such as Jet Airways offer such amenities mostly for free. The airline made losses in nine of the past 11 years, has about 73 billion rupees ($1 billion) of net debt and, according to Bloomberg calculations, had approximately 3.55 billion rupees of cash at the end of last year.

3. Will Jet survive?

It’s looking precarious, with the airline’s finances creaking. It defaulted on loans that were due by Dec. 31 and delayed payments both to staff and lessors. In March, it missed a $109 million loan repayment due to HSBC Bank. As recently as January it was flying a fleet of 124; the company said April 17 it was temporarily suspending flights after its lenders refused to grant it interim funding. Those same lenders are leading efforts to save the airline.

4. What is the lenders’ plan?

To sell a majority stake in the company. State Bank of India, on behalf of all Jet’s lenders, said April 18 “the best way forward” to revive Jet Airways was to get binding bids from potential investors. The banks were said to have shortlisted Etihad Airways, India’s National Investment and Infrastructure Fund and private equity firms TPG Capital and Indigo Partners, people familiar with the discussions said, asking not to be identified as the information is private.

5. What’s at stake for Etihad?

A lot. The struggling Abu Dhabi-based giant has scrapped routes and cut thousands of positions, putting the brakes on a costly expansion after almost $4.8 billion in losses in three years. It just slashed orders worth $21.4 billion for Boeing Co. and Airbus SE jetliners after a strategy of buying into sick airlines around the world backfired. The attraction of building its stake in Jet Airways would be the prospect of serving west-bound Indians heading to the U.S. and Europe via its base in Abu Dhabi.

6. Where’s Goyal in all this?

He resigned as chairman in March. As founder and head of the company, Goyal has dominated its management; potential investors including Etihad had demanded he step down, people familiar with the discussions said. That would allow them a free hand in resuscitating the airline, which has had seven CEOs in just four years. Goyal was said to have opted out of the bidding process after other bidders threatened to pull out if he didn’t, according to local media reports.

7. Why is it important to rescue a private company?

Prime Minister Narendra Modi is in the midst of a national election in which job creation is a key issue. The collapse of an airline -- with 23,000 jobs at stake -- would put a dent in his business-friendly image and fuel criticism that he’s failed to deliver on promises about jobs. Mumbai-based Jet Airways’ disappearance would also likely push up airfares.

8. How are Jet Airways’ competitors doing?

The airline business in India is notoriously difficult, with cutthroat competition pushing base fares to as low as 2 cents. Kingfisher Airlines, founded by beer tycoon Vijay Mallya, ended operations in 2012 after failing to clear its dues to banks, staff, lessors and airports. SpiceJet Ltd. almost collapsed two years later before its founders returned to gain control and revive the company. State-run Air India Ltd. is surviving on bailouts worth billions of dollars. Apart from Etihad, Singapore Airlines Ltd. and AirAsia Bhd. have also set up local ventures, but they are loss-making. There’s one exception: IndiGo, operated by InterGlobe Aviation Ltd., has managed to consistently make money with a tight lid on costs and lucrative maintenance and engineering contracts negotiated as part of large aircraft orders.

The Reference Shelf

--With assistance from Saloni Shukla.

To contact the reporters on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net;P R Sanjai in Mumbai at psanjai@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Grant Clark, Bhuma Shrivastava

©2019 Bloomberg L.P.