Even by the unpredictable ways of Indian aviation, the return of defunct airline Jet Airways has been unusually tumultuous. Jet, which was grounded roughly three years ago due to rising debt, said in May that India’s aviation regulator permitted it to resume commercial flights. In June, the airline said the National Company Law Tribunal (NCLT) approved a resolution plan submitted by a consortium of London-based Kalrock Capital and UAE-based businessman Murari Lal Jalan. These events were followed by media reports the airline was in talks with plane makers Boeing and Airbus for orders running into billions of dollars.
The stage seemed set for resumption of operations in the second half of 2022. Jet began to actively recruit for several functions such as flight safety, cabin crew, engineering, IT infra and so on. But signs of trouble began to surface in September.
The Economic Times newspaper reported that Jet wanted engine makers Pratt & Whitney and CFM International to bear a large share of the cost when a plane’s turbine is replaced. Bloomberg reported that lenders were reluctant to allow Jet to take on any fresh liabilities such as an aircraft order. More differences between the lenders led by State Bank of India and the Kalrock-Murari Lal Jalan consortium, this time over who is responsible for pension fund payments due to former employees, came to light soon after, risking further delays of a relaunch of operations. Jet’s return to skies is dependent on the transfer of ownership. Last week, the Jet management temporarily docked the salaries of some of its employees by up to 50 percent, and sent several on leave without pay. These events have cast a shadow on the airline’s revival. The Jet Airways stock has fallen 15 percent in three consecutive trading sessions. Jet CEO Sanjiv Kapoor justified the “temporary hard decisions”, which he said had to be taken because the ownership transfer timeline was slipping due to factors outside the airline’s control. In an interview with Moneycontrol, Kapoor weighed in on the progress of the transfer of ownership, a timeline for relaunch and the preparedness, among other topics. Edited excerpts:
Why were you forced to take the decision of pay cuts and leave without pay?
We are deeply committed to the revival of Jet Airways and the investments that have to be made for a successful takeover, re-launch, and further on. However, capital comes at a cost, and any capital infusion has to be justified by its purpose, timeline, and return for the investor. It should also be aligned with the long-term strategies of the investor. We had met all conditions precedent as outlined in the NCLT-approved resolution plan by May 20, 2022, but there is delay in achieving the closing date (which should not be long), and there is a short-term need for the capital to be invested judiciously and used efficiently for the long term sustainability of the business. Aviation, as we know, is a very cost-intensive business, and we are in it for the long run.
Can you give a true picture of the extent of this decision? How many employees are affected?
While maintaining confidentiality and honouring the internal discussions and decisions pertaining to the company's affairs, we can confirm that only a fraction of the company employees are affected, but we have made no decision that will affect the company's long-term strategic plans.Does this mean that you are uncertain about the airline taking off in the near picture?
Not at all. The resolution plan is binding upon all involved parties, and it was approved by the NCLT for the revival and relaunch of Jet Airways. We remain fully committed to the airline taking off, however, there is a slight delay in transfer of ownership to us. We had expected the ownership to be transferred by June 2022, after we completed the proving flight and received the revalidated AOC (air operator’s permit) in May 2022. As mentioned above, we have met all conditions precedent in the plan. Both the lenders and the consortium, as well as all stakeholders, are fully committed to the implementation of the resolution plan.
There is no standoff between the lenders and the consortium. Both parties are working together for the implementation of the approved resolution plan. The resolution plan is binding on all stakeholders and all such questions are already answered in the approved resolution plan, and all parties have to abide by those. The liabilities of the consortium are capped at Rs 475 crore.Can you give a realistic time frame of when Jet 2.0 will take off?
We are ready to re-launch within 60-90 days of the transfer of ownership of Jet Airways.Could you give a sense of the preparedness of a relaunch so far before the decision on pay cuts and LWP?
First, we have a wonderful blueprint for Jet Airways’ revival. We truly believe that Jet Airways will be a game-changer in India in terms of a fresh strategy and business model. We aim to transform the airline-customer relationship in the country, from one that is often adversarial, to one that is based on a win-win customer value proposition. Second, we have a highly experienced professional management team to execute this plan, who are raring to get started. And finally, we have negotiated excellent terms for our various supplier contracts that can often be critical in this industry. We have LOIs in place for aircraft, engines, IT systems, ground handling services, catering, call centre, and all of the other services required to run an airline. The terms we have negotiated, drawing on the collective experience of Jet Airways of the past, as well as the experience of our talented team drawn from multiple Indian and foreign airlines, will help Jet Airways in its revived form to be one of the most cost-effective airlines in the country.How much do you think the decision on pay cuts and LWP will affect Jet’s chances of attracting talent and relaunching operations? What is the mood inside the company?
The team we have brought on board is passionate about relaunching Jet Airways, and is proud of the airline they are trying to build; proud of trying to create history. We all have so much to look forward to in a revived Jet Airways. We are confident that we will continue to have a solid team of industry professionals when we are ready to relaunch operations.
Going back in time a little—why enter the segment at all when no airline is making money?
Jet 2.0 has a strategy, fleet, and business plan which is not a clone of other airlines. We believe all airlines doing essentially the same things and losing money together is not a formula for success. This is a tough industry no doubt, and it has recently gone through very challenging times due to COVID. However, we feel there are ways to play where you can be different where you play and how you play, and can therefore succeed. We feel Jet 2.0 can create significant value with its business plan.
Fair enough but why buy a debt laden airline when one could start a new airline with perhaps less money?
We believe there is tremendous value in the Jet brand, and tremendous loyalty to it as well. A revived and restructured Jet could be a very successful airline. In recent years some of the highest value-creating airlines in the world in terms of shareholder value created are storied FSC (full-service carrier) brands that restructured post-bankruptcy, after the global economic crisis and 9/11. Jet could be one, too, post-COVID.
The Indian aviation market is dominated by low-cost carriers. Full-service carriers (FSCs) have long struggled. So is there any value in the FSC model anymore?We believe the FSC model can be very valuable even in India. India is a market where there is space for both a premium and a low-cost segment, much like the US and Europe. A modern and smart FSC can leverage both segments. Jet Airways will provide travellers in India a choice between full-service airlines, especially with the consolidation of airlines that is currently taking place in the industry. Incidentally, the highest value creating airline in the world in the 2012-2019 period (pre-COVID) is the US airline Delta, an FSC, which underwent bankruptcy restructuring in 2010. Seven of the top 10 value creating airlines globally since 2012 have been FSCs.