The Yellow and Blue Phoenix - Jet Airways!
Jet Airways - the nostalgia that comes with the name is refreshing. Once the pride of the Indian skies, its wings were clipped in 2019, when the airline shut down operations due to crushing debts! But now, after two painful years, the company will soon be ready to take to the skies once again. What transpired? What does the future hold?
The story leading up to the shutdown…
Jet Airways commenced operations all the way back in May 1993, with just two aircraft. Expansion, however was on their horizon. They soon placed larger orders with airline manufacturers Airbus and Boeing and gradually but surely grew their presence in the Indian subcontinent. As profits came in, the ambitious plans for aggressive expansion took shape. Soon Jet Airways was flying in four continents and became India’s largest private airline. At its peak, it had a market share of a whopping 21.2%. But…as they say, all good things must come to an end. In this case, it was a slow and tortured end.
With the entry of LCCs (Low Cost Carriers) the airfares fell aggressively. Jet Airways last made a profit in the third quarter of 2013-2014 after which it has been loss after loss.
Why? Okay, let’s take a simple example. A Jet Airways aircraft had 168 seats on its aircraft of which 8 were business class seats. Another LCC had a similar aircraft with 186 seats, all economy. If the airlines both had similar operating costs, say Rs. 1000. The airline can divide this up between the seats, 168 vs 186. So the cost per seat goes down. Jet Airways also included a meal and seat selection in their fares. The Indian market is highly price sensitive. So people gradually moved away from Jet Airways! How does Jet Airways respond? Drop their fares in order to save market share…and in doing so made a loss per seat sold. Slowly this gap widened and the losses began piling up.
In a bid to raise funds, they looked at foreign investment, which came through in the form of Etihad buying a 24% stake in the airline. But by then, it was too late. Too much market share had been eroded, their planes were getting older and harder to maintain and the last nail to the coffin was the soaring prices of Jet A-1. The company slowly started grounding aircraft over unpaid leases in 2018 and slowly but steadily came to a complete halt in April 2019. The last flight was on April 17th 2019 from Amritsar to Mumbai.
When the airline shut down it had more than 9000 employees on the payroll, and by 2020 due to the practically zero income, the net worth of the company was a negative Rs. 12695 crores.
The crew of the last commercial flight by Jet Airways.
Fun Fact: Jet Airways was initially visualised as an Air taxi company that made short flights on request. Only when the domestic potential was seen did the airline start growing.
Now how does an airline like this even have an opportunity to take to the skies again?
Well, that’s where the NCLT comes in. The National Company Law Tribunal is the authority that determines the fate of bankrupt companies. Once the airline shut down, proceedings started, to make a decision - to dissolve or restart the airline. Dissolving would involve selling or auctioning off all its assets and using the money generated to repay some of the debt to banks and lessors. The other option is a far more Herculean task, which involves new investors taking over the company and attempting to restart operations with the intent of paying back a portion of the money owed.
All airlines in India that have shut down have gone via the former path. Air Costa, Kingfisher, Paramount Airways and many more have all been dissolved. The only exception in Indian history has been Jet Airways.
Several bidders were invited to take on the debt stricken airline and finally, at the end of 2020, Jet Airways had new owners. Murari Lal Jalan backed by the Karlock group. They have promised an initial capital infusion of Rs. 100 crores followed by more after the company gets all approvals.
On 22nd June 2021, history was made where the resolution plan submitted by the consortium was accepted by the NCLT and the airline was officially out of bankruptcy proceedings and given permission to restart operations.
Fun Fact: After going public in 2005, Jet Airways shattered all previous records and bought Air Sahara for Rs. 1450 crores, the largest deal of that kind at that time. It was rebranded as JetLite.