Where Jet Airways stands today

Jet Airways

The airline industry has always been a difficult business to run. Being a highly capital intensive industry, requiring many approvals to operate and high cost of fuel are all part of the game; but the real killer in the industry is the competition. If one airline reduces the price of its tickets for any reason, all the other airlines are forced to reduce theirs as well for fear of losing passengers. Hence, margin for error is extremely less and there have been many cases where airlines have been put out of business such as Air India, Kingfisher Airlines, Air Deccan etc.

However, the latest Jet Airways saga that has plagued the airline industry and has been making waves, since, it’s a very high profile case and has been one of the country’s premier airlines for years; and secondly, it comes hot on the heels of a closely fought election, and the fact that jobs of roughly 22,000 employees are at stake, it becomes a politicised issue.

The latest to come our way from the stables of the beleaguered airline is after not being able to pay its pilots and staff their salaries for three months, The National Aviator’s Guild, a union representing around 1,100 pilots of Jet decided to organise a strike that was to begin from today. However, a deeper crisis was averted, and the body, on Sunday, decided to postpone its no flying call to a later date. Add to this, an Independent Director, Rajshree Pathy, has given in her papers and resigned citing time constraints. Further, there is still no clarity on who the Board of Jet Airways will rope in as the new owner with different names such as Etihad Airways, TPG Capital, Indigo, NIIF and even former owner Naresh Goyal doing the rounds. And let’s not forget the airline’s fleet has dwindled to just 6 – 8 aircrafts; a fraction of its 119 it flew before its first default. Also, all international flights have been suspended.

However, the most pressing issue, at least in the short term, seems to be the delay in interim funding of ₹ 1,500 crore that was promised to Jet from a consortium of lenders led by SBI that took over management control from its founder Naresh Goyal. The National Aviator’s Guild has appealed to SBI to release these funds to help Jet pay its salaries that are in arrears and also get operations back to normal. They have also appealed to Prime Minister Narendra Modi to save the 22,000 odd jobs at the airline.

Industry experts, however, do not see this amount of ₹ 1,500 crores as a massive lifeline. In fact when they give us the breakup of figures, it hardly seems like anything at all. Hopefully for Jet, it will be just enough to keep the airline flying till lenders sort through the suitors and find a new owner.

Jet Airways’ fuel bill is pegged to be somewhere in the vicinity of ₹ 7,000 crore a year. Apart from that, in 2018-19, the airline spent ₹ 2,316 crore on rentals, ₹ 2,375 crores on maintenance, ₹ 2,371 crores on landing and navigation costs and ₹ 2,995 on salary costs.

This brings its average monthly spends on these overheads to about ₹ 1,400 crore.

While is it true that the company is operating at well below its capacity and will not incur the full amount of overheads as it did in the previous year, but it still has to pay lessors, vendors, banks and clear arrears.

Another industry to take a hit as a result of Jet’s trouble is the aviation turbine fuel industry. Sales of aviation turbine fuel, after showing an upward trend for 51 straight months till February 2019 under performed as fuel consumption by Jet Airways declined by 75% in the space of just one month coupled with the grounding of Boeing 737 Max planes as well. An Indian Oil Corporation official was quoted as saying that when the airline was operating at full capacity with 119 aircrafts, consumption from them was in excess of ₹ 11 crore a day. This dropped to ₹ 2.5 – 3 crore a day last week. However, after a few instances of non-payment of dues by Jet to IOC, the oil marketing company halted credit payments and now only allows Jet Airways to purchase fuel for all cash payments.

Therefore, taking all things under consideration, common sense would dictate that Jet Airways be taken to bankruptcy court via the IBC process considering the state of its affairs. However, the prospect of 22,000 employees having to look for jobs just at the start of a seven phase election seems to give us a clue as to why lenders have opted for a restructuring plan instead, and are even considering pumping in an additional ₹ 1,500 crore, suggesting that Jet Airways could have become a beneficiary of the an election season in which unemployment is anyways a major issue.

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