Unfortunate Landing of Jet Airways
From being the biggest airline in India to becoming a $1.2 billion debt-stricken airline, it has been a rollercoaster ride for Jet Airways which has enjoyed many highs and stumbled to many lows.
Jet Airways, India’s oldest private airline, started as an air taxi operator in 1993 and grew to become one of the biggest carriers with a premium international network. In the rapidly expanding aviation market it got over 120 aircraft flying to almost 1000 destinations both international and domestic. It was all destined for success.
But on 17 April 2019, Jet Airways released a press statement in which it temporarily suspended all flight operations due to huge losses.
Why did it fail and what are the reasons behind its downfall and bankruptcy?
On 12 April 2007, Jet Airways acquired Air Sahara (later renamed as JetLite) by a hefty amount and it became a wholly owned subsidiary of Jet Airways. Around that time, low-cost carriers like IndiGo and SpiceJet started to dominate in airlines. Passengers were attracted to the lower ticket prices. For Air Sahara, not being a low-cost carrier, Jet Airways had to pay a lot of money for routes and parking slots. In October 2008, Jet airways fired 1900 employees which could be a move to reduce running costs to keep the airline flying. The employees went on streets to protest and were re-hired by Jet Airways after intervention from the Ministry of Civil Aviation.
On 8 May 2009, Jet Airways launched one more subsidiary Jet Konnect, a low-cost carrier. It worked out for short-term. Together, these airlines (Jet Airways and its two subsidiaries) operated more than a fifth of flights in India. On 25th March 2012, Jet Airways merged both its two low-cost subsidiaries.
In 2012-2104, to compete with its biggest domestic competitors SpiceJet and IndiGo who were offering flights at cheaper rates, Jet Airways also lowered prices due to falling passenger demand. The business model of the airline could not cope up with the changes and its market value dropped and posted a loss of ₹4.8 million and in next year, it dropped to ₹36.7 million leaving the financial situation of the airline terrible. Subsequently, Jet Airways ended the Jet Konnect brand and the carrier made the commitment to only offer full-service flights domestically in 2014.
Meanwhile, IndiGo started to dominate the local market and took the place of number one airline from Jet Airways. Now the airline operated on a very thin margin. Their domestic demand reduced and they could not compete in the international market.
Fuel prices surged in the Indian market making it more difficult for the airline to survive. Provincial taxes of as much as 30 per cent on jet fuel added to its expenses. It could not pay its employees and lessors. In turn, lessors began to withdraw their aircrafts and Indian Oil Corporation refused to provide fuel to the aircrafts. Jet Airways owes Rs. 8,000 crore to lessors, suppliers, pilots and oil companies also having other payment obligations. Employees seek financial relief.
On March 25, the board of Jet Airways was presented a resolution plan by the lenders which it approved. As part of the resolution plan, Naresh Goyal and his wife Anita Goyal stepped down from the board of the company.
The company has approached NCLT and a bank-led resolution process is also initiated. The State Bank of India (SBI) has been leading the consortium of creditors. Many leasing companies are deregistering themselves from the aircraft and time is running out to save the crashing Jet Airways.
Several airlines, including Etihad, are interested in bidding. A temporary structure has been proposed which would allow the airline to raise equity from the investors altering the shareholding pattern. Jet Airways revives to debt restructuring and asset disposals, such as selling aircraft and leasing them back.
With India being the fastest-growing aviation market in the world, competition in the field is inevitable. Intense pressure on fares, rising oil prices and volatile Indian currency has made the airlines bleed and struggle to make money. It would be a real challenge to see whether the airline flies again or crumbles under insolvency procedure.
-Ayushi Mishra