Naresh Goyal, Chairman of Jet Airways, India’s second-biggest airline by market share, began his career in aviation as a humble cashier in his maternal uncle Seth Charan Das Ram Lal’s travel agency, East-West Agencies, in 1967. He rose in his field to launch an airline of his own 25 years ago. Today, Jet Airways — saddled with debt, facing a challenging market, grappling with low fares and high fuel prices — is struggling to stay afloat. India’s biggest full-service carrier, Jet has been unprofitable in nine of the past 11 years.
In August, Jet seemed to be on the brink of a crisis when its senior management took pay cuts of as much as 25% and it also asked pilots and technicians to take similar cuts. Facing one of the worst financial crisis of its existence, Jet has delayed salaries, grounded planes, rationalised its network by cutting flights and laid off staff. In October, credit rating agency ICRA downgraded Jet Airways’ long-term borrowing programme. Jet is also facing investigations by the ministry of corporate affairs over complaints of irregular transactions.
After two consecutive years of profits in fiscal 2016 and 2017, Jet incurred losses of about Rs 76 crore during FY2018. Jet Airways has reported its third straight quarterly loss this year. It posted a net loss of Rs 1,292 crore for July-September quarter. It made a net profit of Rs 46 crore a year earlier in the corresponding period. The cost of servicing its Rs 8,100 crore debt is high.
Howver, Jet is not the only carrier that has witnessed a decline in profitability. IndiGo, India’s largest carrier by passengers flown, InterGlobe Aviation, owner of IndiGo, posted a loss of Rs 652.10 crore for the quarter ended September 30. It had reported a 91% drop in profits for the first quarter.
Jet Airways and its peers have a “curious case,” as Kotak Institutional Equities put it in a report in August. “We are quite puzzled,” the brokerage said of the Indian aviation companies’ inability to “raise prices at a time of continued strong growth in domestic passenger traffic”. “We note that the yields of the leading airline companies have not even kept pace with inflation over the past two years, let alone the sharp increase in input costs,” the report said.
The bottom line of airlines is getting hit due to high cost but lower yields in India, which is the largest growing market in terms of passenger growth on the globe. Analysts say fall in yields is due to airlines not being able to charge a premium on fares booked at the last minute.
However, Jet’s peers such as Indigo’s parent InterGlobe Aviation, Tata-SIA’s Air Vistara and even state-owned Air India have promoters with deep pockets and can survive a long scorching fight to the finish in the Indian skies. But to Jet’s detriment, its partner Etihad is faring badly, having raked up losses due to its aggressive acquisitions in the past, including Alitalia, which never paid off.
The beleaguered airline’s cash reserves and net worth have eroded by growing losses and expensive debt continues to burden the balance sheet. Cash-strapped, loss-riddled and debt-burdened the only way forward for Jet now is raising of funds via the equity route. The airline has been said to be actively wooing Tata Group for a stake sale.
Tata Group has shown interest in buying a stake in Jet. However, it wants complete control over Jet along with the exit of existing promoters, the Goyal family, and has rejected an initial proposal for part-ownership and joint control of the airline. Goyal has a reputation of swinging deals. Will he be able to convince the Tata Group? He is running out of time.
