The first step in the resurrection of Jet Airways was taken on Saturday as the grounded airline’s lenders approved a resolution plan by investors based in Dubai and London.
However, the path to Jet’s revival remains long and arduous and will require a fresh business plan with low costs, capital infusion and efficient management. Jet needs airport slots and flying rights to make any headway in its new life.
Most critically, the new owners – UAE-based businessman Murari Lal Jalan and Kalrock Capital – will have to grapple with the Covid-19 pandemic and the uncertainty on aviation demand that lies ahead.
“A clean sheet of paper revival with new aircraft and network, but old brand, may be the best path forward. Remaining fleet probably better off monetised and disposed of, especially given the new Covid and post-Covid reality,” said Sanjiv Kapoor, an independent consultant who previously held senior positions at Vistara and SpiceJet.
Kapoor stressed that slots belong to airports and are allocated on a “use it or lose it” basis, as are rights, which belong to the country and its government, not to airlines.
“However, given the shrinkage of flights and networks and exit/failure of airlines due to Covid, getting fresh slots and rights should not be that difficult and may be a better path forward than trying to claw back slots that have been re-allocates to other airlines,” he said, emphasising that a smart management team needs to be able to differentiate, execute and keep costs low.
Access to sufficient capital will be important, he said, as the lack of capital or an abundance of it has made a difference between IndiGo and other airlines in the country.
“The other question that needs to be addressed is the business model of Jet 2.0 and how the new owners address this,” said Manish Raniga, vice president at South African Airways and a former senior executive at Jet. “There is an expectation that the airline would aim to achieve the lowest possible cost per seat whilst maintaining its yield premium, leveraging its brand and product/service proposition.”
Raniga said this needs to be underpinned by a strategy of enabling digital transformation and ensuring a lean cost structure and head count. Failure to do so may result in the same issues that brought Jet to the bankruptcy court in the first place.
Covid-19 is a curse but also has an upside for Jet, he added.
“The silver lining for Jet is that it’s starting on a level playing field,” said Raniga. “All airlines in India are haemorrhaging cash, with most of them on the brink of collapse. The re-emergence of Jet could be perfect timing for a disruption in the Indian airline space.”
“Kalrock investing in Jet and Bain investing in Virgin Australia are clear signs that aviation will bounce back and can also be profitable if run and managed well. Jet’s journey to recovery will not be an easy one. A simple and focused business plan, executed with surgical precision will be the key,” said a travel industry expert
Jet’s new owners aim to infuse close to Rs 1,000 crore in Jet over five years and plan to buy some new planes. Media reports said the lenders would forfeit as much as a 90% of their dues and may get a 9% equity in Jet. Various creditors had a combined claim of over Rs 40,000 crore against Jet. Financial creditors claimed about Rs 11,300 crore.
“The terms agreed by the creditors don’t make sense to me,” said Kapil Kaul, CEO South Asia for CAPA-Centre for Aviation. “Funding and strategic resources required have been grossly underestimated. The path to an orderly restart of operations, especially in the post-Covid-19 scenario, is uncertain. For the sake of Jet employees, I hope it works.”
Kaul said it seems the lenders especially wanted a face saver and opted for a near-total write-off in the hope of realising equity value.
“And may be writing off was a difficult decision and preferred to backing an unviable proposition, especially given the post-Covid scenario,” he added.
