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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.

Challenges that lie ahead!

1. The process of restarting an airline is seldom easy. The biggest problem faced by Jet Airways — slots!

  • A slot pair is a time period in which an aircraft is allowed to land and take-off from an airport. For example, after an aircraft lands at Mumbai, it will usually have about a 30 minute halt during which it will be cleaned, checked, deboarded and boarded for the next flight. Then it goes to the runway to take off and on goes the cycle.

  • At a busy airport, a slot pair can be extremely expensive. And Jet Airways, since it had been around since 1993, had many prime slots at the busiest airports in India and internationally.

  • When the airline shut down, the international slots were relinquished due to non-usage. The domestic slots were handed over to the DGCA (Directorate General of Civil Aviation) by the MOCA (Ministry of Civil Aviation.) These slots were temporarily reassigned to other airlines with the initial idea being that Jet Airways would retain these slots if and when it restarted.

  • However, during the NCLT proceedings, a different picture was revealed. Because the airline had been shut down for so long, the MOCA refused to reassign the slots to Jet Airways based on their historical precedence.

  • The airline will have to outbid other players to regain their own slots.

2. Aircrafts - which ones and how many?

  • When the airline shut down it had a mixed fleet of Airbus and Boeing aircraft, about 123 in total. However, most of these aircraft were leased and once the airline shut down, the lessors took back the aircrafts and released them to other airlines. That’s why you can see so many SpiceJet aircraft still sporting the former colours of Jet Airways.

  • The aircraft it does own have not flown in almost two years, which could lead to the discovery of many mechanical flaws. The consortium has said that they will refresh the entire fleet with brand new aircrafts on new leases and retire the older fleet that they still own.

  • They are said to start with a target fleet of 25 aircraft (20 narrow body and 5 wide body.)

3. What model will they fly?

  • It has been confirmed that the airline will restart operations in line with its glory days. It will restart as a full cost carrier serving the business class niche as well as economy.

  • The airline will sport the same colour scheme, cabin design, uniforms as it did before the shutdown.

Fun Fact: Airport slots can cost upwards of hundreds of millions of dollars. This is just to get the slot. Every time an aircraft actually lands, the airline is also expected to pay a landing fee!

When will the airline restart?

The creditors had been hoping to restart the airline as soon as possible. The second wave of the COVID-19 pandemic has caused strategic delays in the process of restarting operations. The slot wars have caused further delays. As of now, from June 22nd onwards, the airline has 90 days to get an assurance on slots failing which it will go back to bankruptcy proceedings. Assuming they get the slots they desire and then place orders with airline lessors, the consortium hopes to restart operations in Q3 2021.

Fun Fact: Even when an aircraft I simply parked, the airline has to pay exorbitant parking fees. In fact, it’s cheaper to fly an aircraft than it is to park it!

Someone has said it very famously … ‘Want to become a millionaire? Become a billionaire and then start an airline!’ In more ways than others, this is true. Airlines work off razor thin profit margins. Add in judgemental as well as price sensitive consumerism and the balance is very precariously maintained. Starting an airline is difficult as it is. RESTARTING one is almost unheard of. But if done correctly, especially while leveraging the global economic slowdown. It could be a recipe for success. Time will tell. I for one hope to someday see the skies streaked in yellow and blue once again. JET…SET….GO!




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