The Murari Lal Jalan-Kalrock Capital alliance has won the bid to get Jet Airways back in the air. Finding a suitor is just one of the many hurdles which the airline has to cross. As news started flooding in on the submission by the regulator about the position of slots which erstwhile belonged to Jet Airways, there were renewed doubts on what is left of Jet Airways and will it ever fly again, especially when history suggests it won’t!
This really gets us to the question—what is in it for the new promoters along with the banks, employees and all other stakeholders to get the airline up and running?
What is left of Jet Airways?
A couple of weeks ago, social media was abuzz with photos of the B777, which was dismantled for parts in Chennai—a first by an Indian MRO. Jet Airways was left with just 12 aircraft after the others were taken back by the lessors with a few being placed back in India with Spicejet and Vistara.
Aircraft can easily be replaced. There have been cases of airlines replacing a fleet of aircraft with another and in current time both aircraft and pilots are available aplenty and cheaper than what they ever were, which will help Jet Airways a smoother restart. Currently, the airline is left with a lot of liabilities, minimal aircraft and some employees.
Also Read: Jet Airways insolvency: Revival plans get a 'reset' as boarding time gets extended
But what the airline would require is slots. By slots I mean not slots at any airport but slots at major airports such as Mumbai, Delhi and Bengaluru, which will help the airline attract traffic. While India now has over 100 operational airports, over 60 percent of air traffic is still coming in from the major metro airports. It is these volumes that help airlines reach profitability.
Without slots, any airline is a dud!
At its peak, Jet Airways along with its subsidiary Jetlite operated nearly 110 daily domestic departures from Mumbai. That happened to be the only major airport where it had an edge over IndiGo, which then operated around 96 daily domestic departures.
The government initially allotted the slots on a temporary basis to other carriers and it was linked to additional capacity being inducted. Airlines like Spicejet and Vistara gained the most and AirAsia India which until then operated red-eye flights from Mumbai hit a jackpot with flights across the day.
Slot allocation and distribution can at best be described as opaque. While airports like London Heathrow allow grandfathered slots to be sold, most other airports do not allow the transfer of slots to other airlines at a price. The government, in its classification as “temporary”, had never assigned a timeline to how long the slots would be held in anticipation of Jet Airways coming back and what would happen to the planes which have been inducted by other airlines if the slots are given back as is to Jet Airways.
Do the slots belong to airlines, airports, regulators or is a combination or all is an answer which has left unanswered across the world!
Should slots be handed back or should they not?
Jet Airways planned to restart operations in the summer, which is now pushed by a few months. This is the first instance of an Insolvency and Bankruptcy Code being applied and resolution professionals looking to resurrect an airline. The success of Jet Airways would mean a lot for the whole IBC process across industries and the core to success is the availability of slots.
The airline would start much smaller than it ever was. Giving it back all the slots would mean sucking out capacity from the market. To give away only as many slots as Jet wants would mean there will be a selective withdrawal of slots from others and this process is likely to be non-equitable—which is not fair for the industry.
Also, handing over slots could mean this becomes the norm for years to come. Imagine an airline goes down, a new owner come by, picks it up at a fraction of its liabilities, leaving banks and other lenders with a huge haircut and employees hung out to dry.
The new owners are the real winners here. They get an airline’s soft assets like the slots back, are able to start afresh as they would with a new Air Operating Permit, but with less trouble. The problem is there is no guarantee on how many times this would go on and on.
There already is a remarkable markdown in what the banks would get from the new owners. Even the employees won't get all their dues and so is the case with other creditors. While this is largely being looked at something is better than nothing from the perspective of banks and employees, vendors are keen for future business even if it means (almost) writing off the old dues.
But all of this rests on slots and in an environment where one judgement is quoted the next time for precedent. A wise decision at the policy level is needed to ensure that it helps the incumbents as well as Jet Airways and does not impact future cases.
As for the new owners, what looked like a 100-metre hurdle race is fast becoming a steeplechase marathon.