Jet Airways in Turbulent Weather

Jet Airways in Turbulent Weather

Jet Airways, India’s second largest airline by market share is financially bankrupt and the obvious is spilling out. It has accumulated losses of Rs.10772 crores, a negative networth of Rs.7139 crores, after reporting a loss of Rs.1026 crores in the March 2018 quarter. It owes Rs.8150 crores to banks, which have put it on a watch list, (which the airline incidentally denies), a position prior to being a potential defaulter. Its financial position is so precarious, that it has told its employees that the airline will not be able to operate for more than 60 days, unless major cost cutting is done, including a pay cut of 25%. Interestingly Jet Airways has incurred losses in the past eleven years, except in 2016 and 2017. Insiders say that the airlines needs an immediate cash infusion of $500mn for its survival and that it has sought an urgent funding of $150 mn from Etihad Airways, it 24% minority shareholder, which is also said to be cash trapped.

The matters at Jet have gone even more serious, after it informed the stock exchanges that there will be a delay in declaring its quarterly results for June 2018. Its audit committee did not recommend its results to the Board of directors, pending closure of certain matters. Informed sources say that the airline has serious differences of opinion with its auditors, who have refused to certify its accounts as a ‘going concern’, due to its huge accumulated losses and inability to raise funds for its operations. The auditors consider the airline’s survival at stake, till funds are immediately raised. Banks have refused to step in to rescue the airline out of its financial crisis. SEBI has ordered an investigation, due to such delay, for possible lapses in disclosure and corporate governance. While Jet denies any such differences with its auditors, it has yet failed to offer any convincing explanation. The share price of Jet Airways, in this melee, has hit a three year low.

It is easy to explain the woes of the airline, as being due to the oil price hike and a weak rupee. But that does not explain its huge accumulated losses of almost Rs.11000 crores and its loss making track record of over a decade. Its precarious financial position and state of affairs, is akin to that of Air India, the bankrupt government airline and with thousands of crores of public money at stake, including that of shareholders, lenders and vendors, it calls for a thorough investigation of its suspected state of affairs. If Air India has been a victim of mismanagement, so seems to be the case of Jet Airways, whose situation seems to be similar to defaulting corporates in India, where the company is poor, but the promoter is rich, who now only feels guilty and embarrassed that shareholders have lost money, as the airline’s shares plummet on financial woes. DGCA has ordered a financial audit of the airline; a forensic audit too is a must.


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