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The Rise and Fall of Jet Airways

Md Saud 0

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Jet Airways, once the brightest spark in India’s aviation story, today stands at a point where it has been crippled by huge revenue losses and a rapidly depleting market share.

Even as I write this, Jet Airways has grounded all its planes after lenders rejected its plea for emergency funding. The last flight from the airline operated on Wednesday.

In a statement to stock exchanges, Jet said that the company was unable to pay for fuel or other critical services that would keep the operations flowing.

“Late last night, Jet Airways was informed by the State Bank of India (SBI), on behalf of the consortium of Indian Lenders, that they are unable to consider its request for critical interim funding. 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,” 

The lenders had pushed Naresh Goyal, the founder, out of the company after Jet Airways defaulted on payments to banks and aircraft lessors and was saddled with debt. As per reports, Jet had been incurring a daily loss of Rs. 21 crore and has debt and dues totaling at least Rs. 15,000 crore.

At its peak, Jet Airways had 119 carriers in its fleet and operated about 600 flights a day. It also ran the most successful international operations by an Indian airline.

For an airline that provided quality services for a good 25 years, how did the script go wrong? Let’s have a look at Jet’s journey through the years.

Where it all started?

In the year 1967, Naresh Goyal started his career in air travel, becoming a general sales agent for Lebanese International Airlines. He worked there for almost 7 years, before starting his own travel agency by the name of JetAir Private Limited.

His firm undertook the task of sales and marketing of international airlines, which provided Goyal some valuable insights into the inner workings of the aviation industry.

Around 20 years later, he launched Jet as an air taxi service operator in 1993. Goyal set it up with a 20% contribution from Kuwait Airways and Gulf Air, both of whom exited later.

It was also the time that other Indian industrialists like Subrata Roy, SK Modi and Thakiyudeen Wahid launched their airlines in India.

Overseas expansion and IPO

Jet’s overseas operations kicked off with a Chennai-Colombo route in 2004. A year later, Jet Airways had consolidated its position in the Indian skies as a dominant player with its peers and/or competitors like ModiLuft and East-West Airlines shut down.

The company listed itself at Rs. 1,100 per share. At that time, Jet’s market cap was at Rs.11, 266 crores. It was also around the same time that Sahara Airlines was rebranded to Air Sahara with a market share of over 10 percent.

Talks to buy Air Sahara and its eventual acquisition

By 2006, a host of domestic airlines like SpiceJet, Air Deccan, and Kingfisher Airlines had started operations in the country. It was then that Goyal-led Jet’s consolidation drive when he agreed to buy Air Sahara for $ 500 million.

In 2007, Jet finally bought Air Sahara for about $340 million, which made the combined entity, the largest airline operator in India with over 30 percent market share. Goyal rebranded Air Sahara as Jet Lite, a low-cost offering to take on brands like Air Deccan, SpiceJet, and IndiGo. Many believe that this was a mistake as the deal severely curtailed Jet’s ability to spend extra money to take on the competition.

2009: Naresh Goyal makes it to Forbes List of India’s Richest

In 2009, Naresh Goyal was named to Forbes magazine’s ‘List of India’s Richest’, with an estimated net worth of $700 million, making him the 75th richest Indian.

Etihad invests in Jet Airways

In 2013, Etihad Airways invested $380 million in Jet Airways when the Indian government allowed foreign direct investment (FDI) by international airlines in domestic carriers. Etihad bought a 24% stake in the company after prolonged negotiations.

The Beginning of the End

In its silver jubilee year in 2018, Jet started its decline. By the month of August last year, it became apparent that Jet was in a big financial mess. A combination of various internal and external factors saw the airline default on the payment of salaries to its staff.

Its losses in the current fiscal have been reported to be around Rs. 3,200 crores. In the period of two months from October to December, there were delays in rentals and ground planes started firing staff.
In between January and March 2019, problems mounted even as Jet’s bankers, led by State Bank of India, started to look for ways to infuse more capital into the company.

Also by this time, potential buyers like Tata Sons left the negotiations’ table, which only added to the carrier’s misery. Further, Etihad was adamant that Goyal and his wife step down from the company’s board.

Finally, in the month of March, Naresh Goyal announced that he and his wife Anita were stepping down from the board of Jet Airways, even as banks took control to bail the company out of the crisis. His stake in the company fell from a huge 51 % to a meager 25%.

In these 2 months, Jet was forced to ground around 100 planes.

As a last resort, on April 8 this year, Jet’s lenders invited expressions of interest to invest in the airline. The last date was announced to be April 10, which was then extended to April 12. Finally, on April 17, Jet shutdown all operations.

What lies ahead?

A bidding process, being pursued by a consortium led by SBI is currently underway. The lenders had sought expression of interest from both strategic and financial investors to acquire a stake between 31.2% to 75% in the company.

Six parties had expressed their interest, but two of them- a consortium led by ousted chairman Naresh Goyal and another by some private equity firms backed out. The remaining four, including PE firms Indigo Partners and TPG Capital, qualified as bidders. The qualified bidders will have to submit their binding bids by May 10.

Learnings from Jet’s failure

Jet’s fall is a classic tale of the fall of its founder. Few business failures are so inseparable from the failings of their promoters. Industry insiders often quote a line attributed to Goyal, “I am the person in Jet. When
people look at Jet Airways, they look at me.”

The garrulous founder of the airline, admired by some for his quicksilver wit, was once its biggest asset. Today, he has proved to be its biggest liability.

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