An Emergency Landing—The Jet Airways Crisis

Flight number S2 3502, which flew from Amritsar to Mumbai on 17th April 2019 served as the last run of Jet Airways. The twenty-seven-year-old private airline company—which was once the second-largest airline in India—went downhill in a dramatic fashion, leaving a considerable chunk of its staff unemployed.
Jet Airways was founded by Mr Naresh Goyal as a private company in 1992. Since Indian laws did not permit private airlines to run as scheduled carriers, Jet commenced its operations as an Air Taxi in May 1993 and was granted the status of scheduled airline two years later. Although the market share of Jet Airways in the Indian aviation market grew at a rapid rate, it was Indian Airlines, a state-owned airline, which ruled the domestic market of India at that time. In 2002, however, Jet became the largest airline in the country, and it commenced its international operations in 2004.
Air India and Indian Airlines merged to form a joint entity, Air India, in 2007 which acquired the top position in the Indian airline sector but it was overthrown once again by Jet Airways in 2010 when it became the largest international airline of India with a passenger market share of 22.5%. Jet Airways had a successful run for many years, while other private airlines, like Kingfisher, struggled to earn profits. However, despite establishing dominance in the aviation sector and being the most preferred airline for a long time, Jet Airways had to fly through some dark clouds, and on analysing its current situation, it is safe to say that its flight has been very turbulent in recent times.
In May 2018, Jet declared a loss of Rs. 1036 crores which shot up to Rs. 1323 crores by August. The airline proposed a 25% cut in the salary of their employees as a cost-cutting strategy which was met with firm opposition. In the same month, the Directorate General of Civil Aviation (DGCA) conducted a financial audit to check whether the financial losses of the airline posed security risks or affected the safety of the passengers. Jet’s offices in Delhi and Mumbai were raided by the Income Tax Department in September and Jet faced charges of financial misappropriation as it had defaulted on the salaries of many of its employees.
In the last few months, a large number of flights have been cancelled, and international operations were shut down due to declining funds and a lack of cooperation from pilots over salary delays. By the end of March, over 50% of Jet’s fleet had been grounded, and Jet Airways owed Rs. 8,414 crore to banks and lenders. The downfall of Kingfisher, Air Deccan, and now Jet (temporarily, for now) is a testament to the fact that running a private airline in the Indian aviation sector is a difficult task. Jet Airways, which fared well in the past, was forced to the ground owing to various factors.
Acquisition of Air Sahara Under Poor Management
Jet’s problems began after it bought Air Sahara in 2007 for the large sum of Rs. 1,450 crores. According to aviation experts and analysts, Jet Airways made a terrible mistake by paying a considerable amount for an airline which was running in loss. Despite concerns raised over the deal, chairman Naresh Goyal was adamant about the buyout. The deal had even been called off in 2006, but Goyal made a second attempt in the following year and was successful in taking over the airline. It was renamed ‘JetLite’ which ran as a low-subsidiary of Jet Airways.

JetLite, which was also managed by Jet Airways’ existing management, never earned profits for the company. (Credits: ZEENEWS)
Goyal tried to run the operations by putting both the full-service airline and the low-cost airline together under one management team, which was a terrible decision. JetLite incurred massive losses and it was initially merged with Jet Konnect, another budget airline of Jet Airways, in 2012, and finally integrated with Jet Airways in 2014.
Losing Business—The Take Off of Low-cost Airlines
Jet Airways has always been a full-service airline which offers in-flight meals, free entertainment, and other privileges to its passengers. This increases the per-seat operating cost and makes the airline’s tickets more expensive. On the other hand, low-cost carriers, like Indigo, cut back on service and offer cheap fares instead.

Jet had continuously been losing its share in the aviation market. (Illustration by Times of India)
As low-cost airlines started doing well, full-service airlines like Jet Airways and Air India faced fierce competition in the market. The price sensitivity of the Indian market caused full-service airlines to reduce their ticket prices as they tried to stay in business. Jet Airways still gave the passengers the same services for much lower costs instead of reducing the services that they offered, and this took a toll on its overall finance. Although Air India, as a full-service airline, did the same to stay in business, it is still operating despite being in debt because it is a government funded airline. Indigo, with its efficient business plan, currently holds a market share of 49.5% and is the largest airline in the country.
Fluctuating Crude Oil Prices and Sky-High Debts
India is a major importer of crude oil, which is used as aviation turbine fuel, and therefore, all Indian airlines are sensitive to its price fluctuations. Since aviation fuel is the second largest expenditure, after labour, for most of the airline companies, an increase in its price brings down the profitability of the company. The fluctuating global crude oil prices, coupled with the falling rate of the Indian Rupee, led to a massive burden on Jet Airways. While all airlines suffered due to the fluctuating prices, Jet suffered the most. Goyal’s airline was already in debt and could not make up for the outflow of money due to expensive fuel.
No Funds, No Flying
The major cause of the downfall of Jet Airways was the lack of funds to operate the company. Jet was looking for new investors to come on board to keep the airline active and operational. However, no concrete steps were taken in time. Etihad Airways, a UAE based airline, had a 24% stake in Jet Airways. In 2013, when Jet Airways faced a debt situation, it struck a deal with Etihad which gave Jet Airways around Rs. 2000 crores. Etihad had once again shown interest in striking a deal with Jet to pull it out of its current financial crisis, but it put forth conditions which would have reduced Chairman Naresh Goyal’s share in the company and forced him to cede control over his own company. Goyal, who refused to step down, disagreed with the terms and the deal fell apart. The same happened in November 2018 when Tata Sons were in talks to buy Jet Airways and take control of the company.

James Hogan (left), President and CEO of Etihad Airways with Naresh Goyal, Chairman of Jet Airways during a joint press conference on July 23, 2014. (Credits: Vivek Prakash/Bloomberg)
Analysts look at this crisis as a case in which the promoter, Naresh Goyal, tried to keep the reigns of a falling kingdom in his own hands. With the company falling in a debt trap, no investors came forward to put their money into Jet as they wouldn’t get any control over the company.
Jet Airways’ Real-Time Flight Status
On 14th February 2019, Jet Airways appointed a Bank-led Provisional Resolution Plan. According to it, the lenders to Jet, led by the State Bank of India, are the largest stakeholders in the company. As a part of a resolution plan approved by the Jet Airways board on March 25, Naresh Goyal and his wife Anita Goyal have stepped down from the Jet board. Naresh Goyal held a 51% stake in the company, but with the new plan in motion, it has dropped to 25%, and Etihad’s share is down to 12%.
With no flights operating, the top executives are moving out, and more than 20,000 Jet employees have lost their jobs. Multiple protests, held by the employees, questioned the motive of the banks and the lenders. While some believe that banks forced Goyal to step down in exchange for nothing, many are calling out to the government to intervene and save the crashing flight. Firms took back the aircraft which were lent to Jet and allotted them to other Indian airlines.

Jet Airways employees during a candlelight protest on 27th April in New Delhi. (Credits: PTI)
After the case of Vijay Mallya absconding after the fall of Kingfisher Airlines, the banks and the government are more careful this time. The Serious Fraud Investigation Office (SFIO) and the Enforcement Directorate (ED) are investigating probes against Naresh Goyal and other promoters to check if funds had been withdrawn from the company and whether foreign investment rules were violated when Etihad Airways invested in 2013. A look-out circular has been issued by the Ministry of Corporate Affairs (MCA) which bars all the people being probed in the case from leaving the country. On 26th May, Naresh Goyal and his wife were deplaned from an international Emirates flight in Mumbai.
The consortium of lenders, led by the State Bank of India, tried to get new investors for Jet. However, despite trying to attract companies, none of the negotiations succeeded as the bids were conditional, and the companies wanted the banks to take a major cut on the debt amount. Therefore, on 20th June 2019, the consortium filed an application in the National Company Law Tribunal for insolvency proceedings. Lenders are seeking a resolution under the Insolvency and Bankruptcy Code, 2016, as it would allow for some of the relaxations being sought by the interested parties. An Interim Resolution Professional (IRP) has been appointed for the resolution process. Along with gathering details and taking control over the assets of Jet, the IRP will also be inviting claims from creditors.
The Employees of Jet Airways (India) Ltd. (employees consortium) and Adi Partners LLP (a London based investor) have stated that they would together bid for a 75% stake in the airline. Meanwhile, the Hinduja Group and Etihad Airways, which were in talks with the lenders before the bankruptcy proceedings, are likely to bid for acquiring stakes as well.
The Jet shut down was a temporary one with the banks and lenders trying to revive the airline and bring it back on its feet. However, considering the current status with Jet going into bankruptcy, and no substantial talks with investors having been made yet, the future of Jet is still indeterminate. With uncertainty surrounding the airline, it remains to be seen whether Jet Airways, with its tagline Joy of Flying, will be able to send another flight above the clouds in the near future.
Featured image credits: Neha Harish