Jet Airways could return in summer of 2021, but glory days difficult to recreate
The new owners of Jet Airways plan to bring back the airline as a full-service carrier, but the airline's debt pile is a major headache
After being out cold for one-and-a-half years, Jet Airways -- once India's largest private carrier -- is now showing signs of life. The airline, which had suspended operations in April 2019, could be back in the sky as a full-service carrier in the summer of 2021, according to a report.
The new owners of the airline plan to have a strong presence in the domestic market and wants to connect major European and West Asian cities with Delhi, Mumbai and Bangalore, Business Standard reported. The plan is also to keep Jet Airways listed in the stock exchanges.
After months of arduous negotiations, the lenders of the airline led by the State Bank of India (SBI) in October accepted a Rs 1,000-crore bid by a consortium comprising the London-based Kalrock Capital and Dubai-based entrepreneur Murari Lal Jalan to resuscitate the bankrupt airline.
Jet Airways commenced operations from May 1993 and grew rapidly in a market that was witnessing most private airlines going bankrupt. In 2002, it overtook the erstwhile Indian Airlines in domestic market share. In the third quarter of 2010, the airline emerged as the largest in India, with a market share of 22.6%.
Jet Airways was once India's largest private carrier. Image courtesy: Facebook/Jet Airways
According to Directorate General of Civil Aviation (DGCA) data, in October 2017, Jet (Jet Airways + JetLite) was the second-largest domestic airline after IndiGo, having recorded a market share of 18.01%. The two Jet brands together even had a creditable 13.6% market in January 2019, just a few months before the company's collapse.
At its peak, it was also the most successful Indian aviation company in terms of international operations.
Jet Airways was laid low mainly by its $200-million takeover of Air Sahara in 2007, and by its emphasis on a premium experience, even as the low-cost trio of IndiGo, SpiceJet and GoAir started to make their presence felt, and by poor management by the then chairman Naresh Goyal.
Jet also failed to find a strategic investor that could shore up the company's finances with talks with Tata not bearing fruit and Etihad refusing to increase its stakes as Goyal was at the helm. Notably, Jet had sold a 24% stake to Etihad in 2013 for $379 million after it faced its first major crisis in 2011-12.
As of November 2018, it reported having a negative financial outlook as a result of increasing losses. Even Prime Minister Narendra Modi had called on Jet's lenders to rescue the airline without pushing it to bankruptcy, but the airline never got the agreed stop-gap loan of about $217 million.
According to reports, the airline had been incurring a daily loss of Rs 21 crore and had debts and dues, including unpaid salaries and vendor dues, totalling at least Rs 15,000 crore. It had to ground all its planes after lenders rejected plea for emergency funds. On 25 March 2019, Goyal and his wife Anitha Goyal had to step down from the board of directors.
On 5 April 2019, Indian Oil Corporation cut fuel supply to the airline, citing non-payment of dues. On 17 April 2019, all flight operations were suspended as lenders rejected Rs 4 billion of emergency funding and Jet's membership of the International Air Transport Association (IATA) was suspended too.
On June 17, 2019, Jet Airways' lenders decided to refer the company to National Company Law Tribunal (NCLT) for bankruptcy proceedings under the Insolvency and Bankruptcy Code 2016 after there were no acceptable offers from Etihad Airways and Hinduja Group. The Mumbai bench of the NCLT admitted the airline under the IBC on June 20, 2019.
The Kalrock-Jalan consortium submitted their resolution plan to the NCLT on November 5, a Moneycontrol report said, adding that once the plan is okayed by the NCLT, it would have to be approved by the ministry of civil aviation (MoCA) and DGCA. The consortium on November 3 had submitted the performance security bond of about Rs 150 crore.
However, restarting Jet Airways and quickly taking it to its heydays would be far from easy. Before Vistara, Jet Airways was the only other Indian full-service airline apart from the national carrier Air India.
Jet Airways still retains its goodwill and some aircraft. Image courtesy: Facebook/Jet Airways
Jet Airways had 119 aircraft in its fleet and operated about 600 flights a day at its peak. It also employed 22,000 people, including 6,000 on contract. It is currently left with 11,500 permanent employees and 1,500 contract workers, according to Live Mint.
Also after Jet's collapse, the DGCA had started to redistribute the airline's slots in major Indian airports and Jet also lost its slots in European airports like London-Heathrow and Amsterdam, simpleflying.com pointed out. Its fleet size had plummeted to 12 comprising Boeing 777-300, Boeing 737-800 and Airbus A330-200 planes. These are either owned or under a financial arrangement, according to Live Mint. Most of Jet Airways' planes were leased and after the company's collapse, lessors took back those planes.
The new owners would also get Air Operator's Permit, a share of the lucrative InterMiles frequent flyer programme, brand value and goodwill, and some key slots in Delhi, Mumbai, Hyderabad and Bangalore airports and some foreign airports that had remained intact till October, according to simpleflying.com.
Restarting operations would mean clearing off Jet's debt first. It would also be hobbled by low demand on India's key domestic trunk routes, the simpleflying.com report pointed out.
The Air Sahara deal was seen as one of the biggest reasons for Jet Airways' collapse. Image courtesy: Twitter/@Milesintheair
According to a report in Times Now, the Kalrock-Jalan consortium is ready to pump Rs 1,000 crore into Jet Airways over the next five years. It is also willing to furnish collateral as per the resolution plan.
However, a Hindustan Times report quotes a Jet Airways source as saying that Rs 1,000 crore might be good enough to start a medium-sized airline like Azul or Jetblu, but a company like Jet Airways, which has such a massive debt obligation, would need bigger investment.
Creditors have a combined claim of more than Rs 25,000 crore against the airline at present. Out of this, financial creditors have claims of over Rs 8,000 crore, but they are not expected to recover much of their dues, the HT report said.
The key to success for the new owners of Jet, therefore, would be to start small and keep costs low, the simpleflying.com report suggests.