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SFM: Rise and fall of the legend

Want to know why Jet Airways collapsed?

Jet Airways has found itself in the face of an existential crisis, riddled by mounting financial losses, crestfallen staff and a pool of unpaid debt. Until recently, the airline was the second largest carrier in India by market share. So where did it all go wrong?

Low cost Carriers and Failed acquisition of Air Sahara:

Low cost carriers were starting to dominate India‘s skies. To stay competitive they reduced pricing but still continued with luxury services. The airline acquired Air Sahara at amount of $500 million which was way above what the airline was actually worth. But Air Sahara was not a low-cost carrier and it couldn’t compete with players like Indigo. Plus rebranding of Sahara as Jet-Lite did not work in favour of jet as customers could not resonate with Jet-Lite. Single management approach and lack of financial acumen by Mr. Naresh Goyal lead to such poor decisions.

Lack of adaptability to changing crude oil prices and weak rupee:

The fluctuations in global crude prices might have also contributed to its collapse. The situation was made worse by the weak rupee, which ensured higher fuel costs for the airlines.

Soaring oil costs and the Indian rupee hitting record lows last year affected all Indian carriers. But the others were more resilient. Jet Airways failed to manage its balance sheets and was caught out by these cyclical changes and to overcome this the company raised a high amount of debt which they were unable to repay. It kept on incurring debts and spending more than its revenue. The employees were paid lavishly when compared to the industry standards. For the sake of providing comfort and luxury, the Naresh Goyal backed airline compromised with finances.

Resolution plan:

State Bank of India (SBI), is piloted a bank-led resolution plan (BLRP). A mix of equity infusion, debt restructuring, and asset monetisation aimed at filling the funding gap of Rs. 8500 Crore which includes repayment of debt of around of Rs.1700 Crore, the resolution plan requires the approval of consortium of lenders. Lenders called for expression of interest (EoI). In a twist Goyal also put forward an EoI. Others including Etihad Airways, TPG Capital, Indigo Partners and NIIF also joined the fray. Volcan Investments also expressed interest but withdrawn at the later stage. The lenders also declined the interim funding request made to bank. Currently Synergy group is the only interested in buying the stake in airline, they have a till November 15 to finalise a resolution plan. The Synergy Group is still doing due diligence.

Insolvency Proceeding:

Jet Airways is would be the first Indian company to undergo insolvency proceedings under the Cross Border Insolvency Protocol along with the Insolvency and Bankruptcy Code (IBC) of India. The NCLAT has directed the resolution professional of Jet Airways to cooperate with Dutch Court administrator, which conducted insolvency proceedings against debt-ridden carrier. Jet Airways is facing insolvency proceedings in the Netherlands also and was declared bankrupt in response to a complaint filed by two European creditors.

Lets see if India’s biggest full-service airline recovers to pink of its health and flies high in the sky.

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