Jet Airways and its worst Financial Crisis in 25 years

All Is not well at Jet Airways, India’s second largest airline by market share. The airline is headed into very rough and turbulent weathers

Profitability challenges, Poor credit Ratings and Murky state of affairs

After two consecutive years of profits in fiscal 2016 and 2017, Jet incurred losses of about Rs 76 crore during FY2018. Industry analysts say it is likely to report a loss of Rs 1,000 crore in every quarter of the current fiscal.

But it is not just the eroded financial position and the losses being incurred by Jet Airways which is a matter of disturbance.

The fact is the entire state of affairs are in a cloud. Action after action has been taken against Jet Airways for a lot of other reasons and Its credit rating was downgraded. Jet Airways was a subject of an income tax survey on alleged Tax Violations.

So, it is not only the eroded financial position of Jet Airways which is a matter of concern, it is the overall state of affairs. If u connect these dots, it shows a murky state of affairs at Jet.

Debts, Dipping Shares, Unpaid Salaries, and Lost Fleets

As of today, the airline founded by Naresh Goyal is sitting on a debt of over Rs 8,200 crore. It remains to be seen if banks infuse more funds to rescue Jet Airways, which is facing its worst financial crisis in 25 years.

Jet Airways’ fortunes dipped further as shares plunged almost 5 percent over reports that Etihad, a stakeholder in Jet Airways, formally refused to invest any further in the airline. Founder Chairman Naresh Goyal and his family own around 51 percent stake in Jet Airways while Etihad, a strategic partner, has 24 percent shareholding.

The airline has lost 1/3 of its fleet or over 50 planes. However, some reports indicated that it is operating only 41 planes out of its fleet of 119 aircraft. The airline has been subsequently forced to withdraw over 1,000 scheduled flights. Passengers have even lodged complaints about delayed refunds. But there are much bigger problems for Goyal than paying undue salaries.

Dissatisfied employees are protesting the airline over pending salaries for over 3 months while several staffers are expected to leave unless a rescue plan is finalized soon. Industry experts expect a 1sharp jump in attrition rate at the airline following the prolonged crisis. The airline had told its pilots that their dues will be cleared by March 31, 2019. The dues till March of these employees, including pilots, is estimated to be of about Rs 600 crore but the

The engineers had said in their letter that they are under tremendous stress due to non-payment of salaries. The problems of Jet Airways are set to increase as pilots have threatened to stop working from April 1, unless the airline provides them an assurance on disbursal of salaries.

The reason behind Jet’s crisis: Low-cost model, Competition, High Fuel Prices

Maintaining high profitability in the aviation industry is a tough nut to crack due to increased competition in the sector since low-cost carriers (LCC) like IndiGo, GoAir and SpiceJet came into existence.

Jet Airways, which was one of the largest airlines in India in terms of passenger market share in 2010 (over 22 percent), has failed to keep up with the competition and losing to the low-cost model or a volume-based model started by IndiGo and SpiceJet.

A low-cost model is a pricing strategy which focuses on offering low-priced tickets to increase demand. Airlines which follow this strategy keep ticket prices low to attract more customers.  The challenge with LCC model is that an airline needs 50-60% flight occupancy only to break even and meet the operational costs which Jet Airways is falling to meet for the last couple of years. 

Is there a Ray of Hope?

According to some sources, that banks can provide further loans if major stakeholders –Goyal and Etihad — agree to pledge their shares as security. A consortium of lenders, led by the State Bank of India (SBI), is working on a resolution plan for Jet Airways, which has a debt burden of more than Rs 8,200 crore. Earlier, sources said that Goyal had agreed to cut down his holding to 22 percent as part of securing a deal to bail out the airline.

At the meeting, government officials asked state-run banks to “rescue” the privately-held airline, two officials told news agency Reuters. Officials even asked banks to convert pending dues of the airline into equity and “buy” stakes in the ailing airline.