Business & Finance

A worthless airline now

If a new airline with no legacy baggage can be set up in a lesser amount, then why should an investor risk it in a collapsed airline like Jet Airways.


The unfortunate grounding of Jet Airways, which at one time was India’s largest airline and the national crisis that it has caused, in the airline industry, could have been prevented, had the bankers and the government been more vigilant and responsible. Its collapse is a classic case of sheer incompetence and negligence of the leading bankers, who could easily see the unfolding crisis over the years, but never realised that in case of its failure, more that Naresh Goyal, it would be the bankers and investors who would lose money, particularly if the airline closed down and despite that they took no action whatsoever on time.


It was clearly evident from its quarterly results, that Jet was incurring huge losses quarter after quarter and that mismanagement was writ large in its operations. If a company incurs rising losses continuously, quarter after quarter, it is clear evidence that there is something seriously wrong with its top management, which could be incompetent or could just be deliberately mismanaging its affairs. Naresh Goyal incidentally, is the last person who can be accused of incompetence in the airline industry. Such management destroys public wealth and needs to be evicted and a new one brought in its place. In countries like the USA, a CEO under whose watch a company incurs losses for successive quarters is generally sacked together with his top team, in order to protect corporate wealth and ensure the survival of the entity. But the bankers to Jet did nothing of that sort and were ironically rather indulgent towards Naresh Goyal, such that they kept funding these losses, till their exposure reached a scammy and unsustainable level of over Rs.8000 cr., due to which the collapse of Jet was inevitable.


What the bankers gravely erred in was to take no suitable action on time, which primarily meant, that they needed to do latest in early 2018, what they have done now viz. sack Naresh Goyal and get in new management for Jet Airways. All that they did was to continue putting good money after bad money, now endangering their entire exposure to Jet. If the banks had taken timely action then, they would have salvaged Jet, by securing and retaining its value, such as to attract a buyer to replace Goyal. Till the early part of 2018, Jet was still an attractive buy, with its fleet intact, a market share in place though dwindling, a trained motivated team of over 20000, landing slots at 45 Indian airports and 20 abroad, shareholding in the Jet Privilege program and also a brand which was then valuable. You will recall that the Kingfisher brand was at one point of time, valued at a few thousand crores, against which Vijay Mallya had raised loans for Kingfisher Airlines. At that point of time, apart from getting such value, the relatively low investment needed by an incoming buyer to revive the airline too would have made it an attractive buy for a potential buyer.


But with the grounding of the airline, its value has evaporated and the cost of its revival has shot up to an investment of Rs.20000 cr. in three years, which makes it worthless. Bankers never realised that an operating airline is valuable, but a grounded one is soon worthless and while at present they are struggling to get a buyer on board, this very exercise if it was done a year ago, would have been very different and a national crisis could have been averted.


Today, Jet is a closed and failed entity, which now immediately needs huge funds for its revival. Lessors have seized and taken back their planes and it is a danger of losing valuable slots at airports. Its airline licence itself will soon be in danger of being cancelled. Its brand value too will soon be of little value to a new buyer, if at all one comes on board soon. If a new airline with no legacy baggage can be set up in a lesser amount, then why should an investor risk it in a collapsed airline like Jet Airways. Its market share has dwindled, desperate employees and pilots are leaving it and so are international partners. The only ones left are the struggling bankers, who let the value of the airline be destroyed under their watch and also the value of their exposure to Jet. No wonder reports say that bidders for Jet are demanding that banks write off 80% of their loans, to make it a viable offer, which is a loss of Rs.6500 crores to the bankers. National loss and a crisis caused due to their sheer negligence and incompetence.

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