Anti-BJP parties’ show of strength in Kolkata164.100.47.193/fileupload/current/114621.pdf · into a dire situation where it may face even closure if its owner, Naresh Goyal, does

1232019 In a tailspin - Frontline

httpsfrontlinethehinducomthe-nationarticle25641854ece 15

DISPATCHES DISPATCHES (HTTPSFRONTLINETHEHINDUCOMDISPATCHES)(HTTPSFRONTLINETHEHINDUCOMDISPATCHES)

AVIATIONAVIATION

In a tailspinIn a tailspinANUPAMA KATAKAMANUPAMA KATAKAM

Print edition December 21 2018

Struggling with massive nancial losses from earlier this year Jet Airways a major player in

Indiarsquos aviation landscape faces an uncertain future

JET AIRWAYS turned 25 this year It is the only private airline to have survived of the rstlot of airlines that started operations when the civil aviation sector opened up in the early1990s Unfortunately in recent weeks the crisis in the commercial carrier has snowballedinto a dire situation where it may face even closure if its owner Naresh Goyal does notnd a buyer or funder

Primarily hit by higher fuel expenses currency uctuations and below-cost airfares theairline declared a Rs1036-crore loss in March at the end of the rst nancial quarter ofthis year It suered further losses in the third quarter As things stand it may not surviveuntil the fourth quarter The impact will obviously be staggering considering its passenger

Anti-BJP partiesrsquo show of strength in KolkataAnti-BJP partiesrsquo show of strength in Kolkata(htt f tli th hi d di t h ti l 26049445 )(htt f tli th hi d di t h ti l 26049445 )

Naresh Goyal Jet Airways chairman Photo Rajanish KakadeAP



load its large number of employees the huge eet it operates the airport space itoccupies and the domestic and international routes it ies As a public listed company itsshutting down will have an adverse impact on the markets and of course investors

Goyal say nancial experts has few bailout options at present The Centre had apparentlyasked Tata Sons Limited to explore the option of buying the beleaguered airline The Tatasit is believed will do it if Goyal sells his ownership stake and steps down For a short whileit looked like Reliance Industries Limited the conglomerate with deep pockets wasinterested but airlines were perhaps not on its list of takeovers and it seems to no longerbe in the picture Etihad Airways Jetrsquos partner airline which owns 24 per cent of thecompany could be another contender and industry sources say Goyal has appealed to it tosave his airline He is willing to concede operational reins to the West Asian airline inexchange for a cash infusion

ldquoThe crux of the problem is that Goyal is unwilling to give up his ownership position Eventhough Jet is a valuable product to own Indian industry does not trust himrdquo said aninvestment banker who monitors the civil aviation sector

As this magazine goes to press Goyal is hunting for a funder or buyer There were reportson several nancial websites on November 28 stating that he has said that he is nowwilling to relinquish his controlling stake if that is what it will take to save the airline Thecompanyrsquos share price which had been sliding improved with the news However thisinformation could not be veried

ldquoThe best contender for the debt-ridden airline would be the Tatas They own thedomestic carrier Vistara and acquiring Jet will help the Tatas gain scale For instanceVistara has not been able to expand as rapidly as it should because of the lack of slots atprominent airports such as Mumbai Delhi and Bangalore Should the Tatas acquire Jet itsdomestic market share will grow to 24 per cent making it second after Indigo which has a432 per cent market sharerdquo said the banker Jet also has an established internationalpresence with a strong network across Europe and Asia The Tatas own Air Asia so they areobviously interested in the aviation market he said

ldquoIt is just Goyal that is the problem for them He has a tainted reputation and the Tataswould prefer to stay clearrdquo said a source in the Tata group Yet Jet has so much to oermdashhealthy routes good passenger ow and a strong infrastructuremdashthat the Tatas informedsources say have begun due diligence on the airline to see whether a buyout is viable TheTatas with their partner Singapore Airlines wanted to take over Jet in a two-steptransaction beginning with a reverse merger and ending with a buyout but the board ofTata Sons had second thoughts when Goyal refused to step down he said

As Jetrsquos partner Etihad has the right of rst refusal in case of share sales This makes it astrong contender for ownership However as it is a foreign company Indian regulators willonly allow it to own up to 49 per cent of the company Jetrsquos strong routes to the Gulfparticularly Abu Dhabi make it an attractive proposition for Etihad



The rst red ag relating to Jet Airways went up when the company declared massivelosses in the rst nancial quarter of 2018 By all appearances Jet Airways seemed to be acompetent airline It was operating out of international terminals it was a full-serviceairline that gave passengers luxuries that budget airlines did not To the average travellerthere was no hint of trouble

The astounding loss of Rs1036 crore was a shock to the market In the same quarter inthe previous year the airline declared a prot of Rs6024 crore The losses in the secondand third quarters of Rs1261 crore and Rs1297 crore were equally disastrous accordingto the companyrsquos nancials

Analysts say the total enterprise value of Jet Airways is about Rs12000 crore (marketcapital plus debt minus cash) with the total debt of the airline standing at Rs8000 croreand the market value at Rs3940 crore ldquoIt is a healthy company but a combination ofexternal factors and some of its own ineciencies have led it to this conditionrdquo said thebanker

Explaining the cash crunch he said ldquoUnfortunately Jet Airways has suered from thedouble whammy of rising fuel costs and a rising dollar Fuel costs can range from 18 percent to 30 per cent of the total expenditure of an airline and therefore form one of themost signicant factors aecting protability In 2018 the price of crude has uctuatedfrom a 52-week low of $ 60 per barrel to a high of $ 85 per barrel In addition the crudetrade is denominated in US dollars and that has also moved adversely for India From anaverage exchange rate of $1 = Rs65 in March the price moved to $1 = Rs74 in October2018The compound eect of both badly impacted the airline industry in India and Jet inparticularrdquo Jet has been hit the hardest as it is a full-service airline and its costs arehigher Budget airlines have also been aected by the oilrupee factors but not as badly asJet has been Indigo for instance reported its lowest prot in the quarter ended June 2018

In an informal conversation a junior pilot said that Jet had been struggling withoperational issues for some time It was once a tightly run ship but in recent yearsoperations had become unwieldy and ineciencies had begun creeping in For instancethe airline performed badly on on-time arrivals and departures There were roster andscheduling problems Another indication that something was wrong Jet has seen six chiefexecutive ocers in four years Already in the grip of internal problems the airline couldnot cope when hit by external factors

While announcing the terrible third quarter losses Goyal said the company was working ona plan to reduce costs by Rs2000 crore over the next two years As the nancialsdeteriorated rapidly in November the airline immediately began taking cost-cuttingmeasures Sadly this started with layos and the shutting of its Hyderabad oceTravellers conrmed that frequent iers were denied lounge access unless they were yingbusiness or rst class

When Jet Airways took to the skies in 1993 it launched itself as a premium airline thatcould make ying an enjoyable experience It was a refreshing change from the stodgyIndian Airlines and its smartly turned-out friendly crew set a high benchmark that even



budget airlines would follow A trailblazer of sorts it introduced schemes such as skyshopping the frequent yer programme and giving to charity Its largest contribution hasbeen connections to some of the most remote places in the country

Jet saw good days when it bought out Air Sahara in 2007 which increased its market shareto approximately 30 per cent for a while In 2013 the strategic alliance with Etihad Airwaysbrought in about Rs2000 crore and gave it a much-needed cash infusion that helpedexpansion It looks like Etihad may once again be helping its partner

With close to six crore domestic passengers (according to the Directorate General of CivilAviation) ying has become par for the course in India A plane ticket could often cost lessthen a railway ticket to the same destination Analysts say the heavy trac and loadfactors do not necessarily indicate a healthy sector In India the capacity of airline seatsmay have increased but the seats go for a song barely covering costs for budget airlinesnever mind full-service ights such as those Jet operates Jet is so much a part of thecountryrsquos aviation landscape that the idea it may no longer exist is mind-boggling For thesake of travellers and shareholders one hopes that a solution can be worked out

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load its large number of employees the huge eet it operates the airport space itoccupies and the domestic and international routes it ies As a public listed company itsshutting down will have an adverse impact on the markets and of course investors

Goyal say nancial experts has few bailout options at present The Centre had apparentlyasked Tata Sons Limited to explore the option of buying the beleaguered airline The Tatasit is believed will do it if Goyal sells his ownership stake and steps down For a short whileit looked like Reliance Industries Limited the conglomerate with deep pockets wasinterested but airlines were perhaps not on its list of takeovers and it seems to no longerbe in the picture Etihad Airways Jetrsquos partner airline which owns 24 per cent of thecompany could be another contender and industry sources say Goyal has appealed to it tosave his airline He is willing to concede operational reins to the West Asian airline inexchange for a cash infusion

ldquoThe crux of the problem is that Goyal is unwilling to give up his ownership position Eventhough Jet is a valuable product to own Indian industry does not trust himrdquo said aninvestment banker who monitors the civil aviation sector

As this magazine goes to press Goyal is hunting for a funder or buyer There were reportson several nancial websites on November 28 stating that he has said that he is nowwilling to relinquish his controlling stake if that is what it will take to save the airline Thecompanyrsquos share price which had been sliding improved with the news However thisinformation could not be veried

ldquoThe best contender for the debt-ridden airline would be the Tatas They own thedomestic carrier Vistara and acquiring Jet will help the Tatas gain scale For instanceVistara has not been able to expand as rapidly as it should because of the lack of slots atprominent airports such as Mumbai Delhi and Bangalore Should the Tatas acquire Jet itsdomestic market share will grow to 24 per cent making it second after Indigo which has a432 per cent market sharerdquo said the banker Jet also has an established internationalpresence with a strong network across Europe and Asia The Tatas own Air Asia so they areobviously interested in the aviation market he said

ldquoIt is just Goyal that is the problem for them He has a tainted reputation and the Tataswould prefer to stay clearrdquo said a source in the Tata group Yet Jet has so much to oermdashhealthy routes good passenger ow and a strong infrastructuremdashthat the Tatas informedsources say have begun due diligence on the airline to see whether a buyout is viable TheTatas with their partner Singapore Airlines wanted to take over Jet in a two-steptransaction beginning with a reverse merger and ending with a buyout but the board ofTata Sons had second thoughts when Goyal refused to step down he said

As Jetrsquos partner Etihad has the right of rst refusal in case of share sales This makes it astrong contender for ownership However as it is a foreign company Indian regulators willonly allow it to own up to 49 per cent of the company Jetrsquos strong routes to the Gulfparticularly Abu Dhabi make it an attractive proposition for Etihad
















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Documents

Anti-BJP parties’ show of strength in Kolkata164.100.47.193/fileupload/current/114621.pdf · into a dire situation where it may face even closure if its owner, Naresh Goyal, does