Jet Airways is on a downward trajectory, and much of it is of its own making. The company’s chairman Naresh Goyal is trying to put together the pieces, but the only chance of survival is if the blundering promoters exit and make way for a new, professional management.
The fact sheet of the airline reads like a riot report. Jet suffered three massive back-to-back quarterly losses — Rs 1,045 crore in the January-March 2018 quarter; then Rs 1,323 crore in the April-June quarter and finally, Rs 1,298 crore for the July-September quarter. By September 30 last year, the airline was groaning under the weight of a Rs 8,052-crore debt. Payments to pilots and staff are being delayed. Many domestic and Gulf destinations have been suspended to conserve cash and fresh delivery of aircraft has been stopped. The crisis hit the roof when the airline defaulted on its repayment and interest due on December 31.
The default has now set off a merry tug-of-war between the promoters, investors and lenders, State Bank of India and others. Sensing an opportunity, Gulf carrier and 24 per cent stakeholder in Jet, Etihad Airways, says it will infuse fresh capital; but will buy the shares at a discount, and on condition that Naresh Goyal, who owns 51 per cent, dilute and exit. The SBI-led consortium is not happy with Etihad taking over, and is willing to throw a further lifeline to Goyal.
The failures of the Naresh Goyal management have to be seen against the backdrop of a free run Jet Airways has had from May 1993, when it first began operations, to the launch of competition in the form of SpiceJet and IndiGo airlines in 2005 and 2006, respectively. After private airlines were allowed in 1992, and after the initial start-ups East West Airlines and Damania Airways collapsed, Jet Air has had a virtual monopoly over Indian skies for nearly 2 decades — an opportunity it has squandered.
As budget airlines, IndiGo and the others only began making an impact around 2010-12. The undercutting in ticket prices was never an issue for years. Why was Jet not able to exploit its first-mover advantage and build a robust financial business?
Naresh Goyal has had all the political patronage he could hope for. The one significant challenger that could have emerged — the proposed Tatas-Singapore Airlines venture — was nixed in the bud in 1997, when then aviation minister C M Ibrahim shot down the proposal. Subsequent aviation ministers, especially Praful Patel of the Nationalist Congress Party, also backed Jet Airways, and insidiously hobbled state-run Air India.
Again, Naresh Goyal’s decision to go ahead with the acquisition of Air Sahara in April 2007 for a ridiculously over-priced deal of Rs 1,450 crore,was perhaps the tipping point in Jet Airways’ fortunes. Goyal thought the acquisition would keep it ahead of the new budget airlines by launching his own (Jetlite with Air Sahara aircraft). Instead, the acquisition proved to be the beginning of his downward spiral into a debt trap, even as Jetlite failed to take on competition.
It' time for change
Finally, in recent years, the Goyal management has even been fumbling with Jet’s basic business model, that of being a full service airline. Cutting on meals and services and restricting these to only Jet Privilege members is a small saving compared to the huge blow it has delivered to its brand. On the other hand, by competing with other budget airlines by slashing ticket prices to gain volume has destroyed Jet’s future to gain healthy revenues through better margins.
Naresh Goyal has had a long, 25-years run, and though he has built Jet, it is time he went. Good corporate governance demands that there be change in management after the incumbents have reached a dead end. Travis Kalanick helped found Uber as a success story in 2009; but when its investors found the leadership was falling apart, they forced Kalanick to quit in June 2017.
Jet’s lenders, the SBI-led consortium, have few options. Supporting Naresh Goyal is not one of them. It is throwing more good money after bad. An Etihad-led takeover is also an iffy option considering Etihad Airways itself is in financial trouble, and has seen a 71 per cent contraction of profits. Perhaps the best bet is an immediate restructuring of debt, and the bringing in a new professional management. With some infusion of working capital, the airline can be kept flying till a long-term solution on ownership and vision is found.