In this episode, Rakesh Sharma discusses the latest development in the Jet Airways' troubles.
Union Civil Aviation Minister Suresh Prabhu, earlier on Friday, has ordered a review into matters related to the cash-strapped, debt-ridden, much-beleaguered Jet Airways. On Thursday, the airline had cancelled all its west-bound international flights from India until Friday evening citing operational issues, which is code for, "We do not have any money to keep working."
Take the case of Jet Airways' flight 9W231, a Boeing 777, from Amsterdam to Mumbai slated to depart on the 10th of April. The flight was cancelled. Reason cited by the airline? Operational. Translation? A European cargo services provider seized the plane over non-payment of dues. Reports from earlier this week had suggested that the Boeing 777 plane in Jet's fleet could be repossessed due to delayed repayments. Jet has defaulted payments worth more than $18 million to its global lenders, including Citibank, which had financed Jet's purchase of the 777s on the back of guarantees from Export-Import (EXIM) Bank of the USA.
Troubles on foreign shores and ports are the lesser of Jet's several concerns - closer home, Indian Oil had stopped fuel supply to Jet for at least three of the last eight days. On the 4th of April, alarm bells rang at their highest volume. "Jet Airways may not fly beyond April if it does not get 1,500 crore in a week," said headlines. The airline is 8,000 crores in debt; three months' salaries are yet to be paid to the pilots, engineers and senior management.
The saga of Jet Airways is one we are only too familiar with here on Moneycontrol. If you are not, here is a quick recap. Naresh Goyal and his role and stake in the airline, Etihad Airways, State Bank of India, unpaid lessors and staff, the Indian government... are all central topics in this saga, and in the past couple of days, there have been more developments. Those will be our topics of discussion as Jet, (all set to be gone?), is our story of the day. My name is Rakesh Sharma, and you are listening to Moneycontrol.
Chowkidar Suresh Prabhu, whose other job is Union Civil Aviation Minister (don't blame him; it's a hustle economy) wrote on Twitter this morning: " Directed Secretary to review issues related to #JetAirways. Asked him to take necessary steps to minimise passenger inconvenience and ensure their safety."
Passenger inconvenience is putting it mildly - the airline is operating nine planes today. At the peak of its operations, just under a year ago, that number was 123! The cash problems of the airline are now legion, but one statistic stands out - Jet owes more than Rs 3500 crores to passengers on account of flight cancellations alone.
The troubles of Jet have created a lacuna that has only been too gleefully filled by its competitors. According to a report on PTI, “SpiceJet will induct 16 Boeing 737-800 NG aircraft on dry lease and has applied to the Directorate General of Civil Aviation (DGCA) for a No Objection Certificate (NOC) to import the aircraft." The additional aircraft are likely to join the fleet in the coming ten days, subject to approval by the regulatory authorities.
Suresh Prabhu's directive comes in the wake of several incidents. One among them being Jet Airways domestic pilots' body, the National Aviators Guild (NAG), deciding to go on strike over unpaid salaries on April 15, and protest in full uniform. "On March 25, a media announcement was made by the State Bank of India (SBI) that an interim funding of Rs 1,500 crore will be made to keep Jet Airways operational. Till date, we are awaiting the funds. Meanwhile, our airline is dying a slow death due to unpaid salaries of pilots and engineers for over three months," read the internal communication. The NAG had been seeking a meeting with the management since March 31 but had not received a communication about the same, which has clearly added to the anger of the Union, which reiterated, that the pilots had "gone over and above the call of duty to help keep the company afloat."
Until recently, Jet was the second largest airline by market share, and is now close to going under with burgeoning debts of over a billion dollars.
Public sector banks, led by State Bank of India, had given themselves 180 days to resolve the Jet Airways account even though the time limit had become irrelevant after the Supreme Court order that quashed an earlier Reserve Bank of India (RBI) circular on debt resolution. Jet first defaulted in loan repayment on the 31st December, which means, the 180-day period from default will end on the 30th of June. According to multiple reports, if attempts to bring in a strategic investor fails or is not completed by June 30, lenders may immediately initiate bankruptcy proceedings against Jet, SC quashing that circular notwithstanding.
Troubles seemed to begin in August last year when Jet failed to report its quarterly earnings or pay staff, including pilots. It later reported a loss of $85 million. The 26-year-old airline has posted losses in eight of the past 10 years and its share of the domestic passenger market has fallen to about 15.5 percent in 2018 from 22.5 percent in 2015. In February this year, it secured a $1.19 billion bailout from lenders to bridge a funding gap, but that has not plugged the hole it seems to be sinking into, with a nary a sight of take-off. Fluctuating global crude prices and a weak rupee, as well as fierce competition from budget rivals, have all been cited as reasons for the quagmire Jet finds itself in, but there are analysts who trace its troubles to the fateful purchase of Air Sahara. Analysts claimed it was mismanagement on Goyal's part. Then there are those that say an ambition for too much too soon - purchases of wide-body aircraft 13 years ago and ambitions for the international market - may also have been a reason for the course Jet finds itself on now. In 2013, when it seemed like shutters down for Jet, Etihad came to its rescue and bought a 24% stake in the airline. As part of the deal, Etihad also bought three pairs of Jet's landing slots at London's Heathrow airport and 51 percent stake in its frequent flyer program, Jet Privilege.
The lenders invited Expressions of Interest (EoI) from investors looking to pick up a majority stake in Jet. The deadline was set for the 9th of April, which has since been extend to end of play today on the 12th of April. Jet Airway's former chairman Naresh Goyal has said he has cooperated fully and facilitated the bank-led resolution programme for the company. On March 25, Mr Goyal had stepped down from the board of the airline and ceded majority control to the SBI-led consortium.
Clarifying on the EoI guidelines, the lenders said they have now allowed restructuring of the debt and infusion of funds by way of loans or acquisition of a minimum of 32.1% and a maximum of up to 75 per cent equity in the company to any investor either individually or in consortium. Indian rules cap foreign airline investment in domestic carriers at 49 percent, and the government is eager to see Jet remain with an Indian entity, sources have said. That narrows the list of potential investors, aviation financiers and leasing executives said.
Etihad, the gulf carrier, which owns 24% of Jet Airways and is the second largest stakeholder and whose stake can only go up to 49% according to the rules, has submitted its EoI on Thursday, as lenders led by State Bank of India have been trying to persuade Etihad to increase its investment to help revive the carrier. Etihad though has been insisting on an exemption from the takeover norm that requires investors to make an open offer for a further 20% stake if they exceed a 25% threshold. Apart from Etihad Airways, other interested players who have also submitted bids include private equity majors and sovereign fund National Investment and Infrastructure Fund (NIIF), Indigo Partners, and TPG Capital.
News now is that Goyal may not be ready to let go of Jet just yet. As we have discussed before, Naresh Goyal, the founder of Jet Airways, and his wife Anita Goyal last month stepped down from the board of the ailing airline, ceding majority control to the consortium, following reduction in their stake as per the resolution plan formulated by the lenders. He is said to be planning to bid for the airline, although no new reports confirming the same have emerged at the time of this being published. According to Business Today, "In a filing to the exchange, Jet Airways on Thursday said that Goyal, who owns a 51 per cent stake in the airline, has pledged over 2.95 crore shares or 26.01 per cent stake with state-owned Punjab National Bank."NB.: We will keep you updated about who the potential suitors are, whether or not Naresh Goyal has submitted a bid, and what the outcome of the staff meeting was, as and when they trickle in. If Jet goes under, it will be the tenth to do so in just under six years, including the likes of Air Carnival, Air Pegasus, Zoom Air, Air Mantra, and of course, Kingfisher Airlines.