The Revival of Jet Airways: In the Making
Created on 19 Nov 2020
Wraps up in 6 Min
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Updated on 07 Sep 2022
Throughout the Indian history, whenever the ruling government has been found fishing for a compliment, the opposition is always prepared to hit back with a few common problems, the most common one being the evergreen Indian problem of "unemployment". Unemployment in India has been a continuing problem for decades but has never been solved to the fullest. However, the problem always takes a massive leap whenever instances of mass unemployment occur, all at the same time.
Mass unemployment is when thousands of people lose their jobs together at a common point of time.
As history goes, instances of mass unemployment have happened quite a few times; a famous one has been the Vijay Mallya Scam when thousands of employees suffered from the closure of Kingfisher. Another recent example is the story of Jet Airways, where more than 22,000 employees lost their jobs altogether.
A very well known name in the civil aviation industry of India, 'Jet Airways' has had a taste of both extreme success and failures. However, what's different about this case is that it is on the brink of attaining something that couldn't happen for Kingfisher, "the revival".
Let's take a deeper look into the story.
The Beginning of Jet Airways
After the government's policy of liberalization and privatization in 1991, Jet Airways Public Ltd. was among the first five private airlines to fly in the Indian skies. This oldest private airline of India was founded in 1993 and kept on gliding to new heights since then.
Jet Airways kept on boosting its market share, eating into the monopoly that was celebrated by the national carrier Air India. The surge and strengthening of Jet occurred simultaneously with the fall of Air India.
In its golden years, when the stars were in favour of Jet, the airline got a tremendous customer base by redefining the flying experience of Indian airways.
In its first financial year, it attended to 12 domestic routes with a market share of 6.6 percent and a fleet of four Boeing 737 aircraft. By the next year, it was successful in claiming itself as India's second-largest private full-service airline. Also, raised its fleet to seven.
By 1997, the market share of Jet Airways had inflated to 24%. The fleet expanded to a decent number of 12 aircraft, and it was operating 197 daily flights over 37 domestic routes.
What led to the losses of Jet Airways?
Jet Airways was successful in making the headlines over quite a long period of time. During that period, there were many observers and analysts who had come up with a list of reasons, which later on, actually played the core role in the failure of Jet Airways.
A company which once had a price of Rs. 870 per share, was, by May 2020, at a situation where its stock traded even lower than Rs 20 per share. Here are the possible reasons that are attributed to the failure of the airline giant:
- Costly Purchse: The number one cause of the downfall of Jet Airways is considered to be an expensive purchase when Naresh Goyal, the Founder-Chairman of Jet Airways, in 2007 bought the debt-ridden Air Sahara for a cash deal of $500 million.
During that time, many market analysts felt that it was a very expensive buy. Jet Airways rebranded the acquired airline as 'Jet Lite'. However, this fresh investment was continuously leaking money, and eventually, it was completely written off in 2015.
- Budget Airlines: The main issue of concern for Jet Airways started to happen with the introduction of budget airlines in the airline sector of India. Jet Airways could not match the competitiveness of pricing of budget airlines.
And, therefore, they had to cut the prices for their tickets, which eventually led to decreased revenues and losses. What jet airways neglected to comprehend is that the plurality of the customers of airline sectors are always price-sensitive and services offered are the secondary factor.
- Poor Management: This had a lot to do with the Jet Airways founder Naresh Goyal's style of management. Goyal wanted to have centralized control over both full-service carriers and budget carriers, which eventually rebounded, as complete planning and focused management was missing in both places. This eventually led to bad management decisions and of course, leading both businesses to incur losses.
The Crash of Jet Airways
As mentioned above, the bad decisions and bad management styles forced the company to shut down its operations. Back in April 2019, Jet Airways was completely grounded with its last fleet from Amritsar to Mumbai.
The core reason behind all this was the company running out of cash and at the same time, the once negligent banks, were now, not willing to lend further money.
Since then, the company hasn't resumed its operations again.
How was the share price affected?
There was once a time when Jet Airways used to have a whopping share price of Rs. 800. However, when the news of its grounding came out, the share price, tragically, fell from Rs. 250 straight to Rs. 20 per share. Within a span of only one year, the company had faced a loss of approximately 90% in its share price.
This was the same story with Kingfisher. But as we said, the revival is something that is not experienced by Vijay Mallya's airline. Recently, this year the share price of Jet Airways has started to increase yet again.
According to Bloomberg, the share price of the bankrupt airlines Jet Airways has jumped 130% this year, without it flying even once this year.
So, who is willing to buy the stakes in a bankrupt company?
The Revival of Jet Airways
The once most famous and largest private airlines have yet again found potential investors for itself. Where the whole world is crying about the year 2020, calling it as a black year, for Jet Airways this year has turned out to be quite hopeful.
The creditors of Jet Airways have ratified a revival plan illustrated by a consortium of UK-based Kalrock Capital and a UAE-based businessman Murari Lal Jalan.
Who are they?
KALROCK is a global company operating in financial advisory and alternative asset management, managing significant partners' assets across numerous simply defined and assorted techniques and single investments, with a focus over the private markets.
According to various people in the business world, Murari Lal Jalan is a very low-profile businessman, and hardly a few people have information about him. He began his journey as a paper trader. In 2003, he went on to broaden his paper business and went on to acquire Kolkata-based Kanoi paper and Industries.
He renamed it as Agio paper. However, in 2010, the stars of this businessman turned when the paper companies faced a lawsuit from Government agencies. The reason for this was the pollution-related issues, and since then the operations have been suspended.
In the revival plan of Jet Airways, the consortium has placed a bid of a whopping amount of Rs. 1000 crore to buy the ailing airlines. Recently on November 3, 2020, the consortium deposited the performance security of nearly Rs 150 crores. The investors will be earning 9.5% equity in Jet Airways along with 7.5% equity in a loyalty rewards company named InterMiles.
Jet Airways will then have to submit the resolution plan before NCLT (National Company Law Tribunal). And once the resolution is passed by NCLT, the investors will be getting approval from the Ministry of Civil Aviation of India.
Jet Airways has been a company which truly has experienced a roller coaster ride. From being the top counterpart of the Indian Aviation System to being the most neglected one, the company has seen it all. But the management would now have an optimistic approach as it now has hopes of a revival.
What needs to be seen is how the money will be used to revive the fortunes of Jet airways. Whether it will be used to bring the airline back in the Indian skies or it will be used to pay off the creditors. It is noteworthy that the previous problems of Jet Airways and its competitors Spicejet and Indigo are still standing. So how will the company deal with these rivalries?
Though the way of complete revival is long and full of hurdles, it is still achievable. It will be a sight to see how the management will design the future of Jet Airways.
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