White knight, red ink

Flying operations aren’t going well either. A quarter of its 124-strong fleet is grounded because payments aren’t being made to leasing companies, and Jet has cancelled all flights to and from Abu Dhabi, the headquarters of Etihad.

The company’s pilots are threatening to go on strike because they haven’t been paid. The airline’s share price has plummeted, now standing at around a quarter of what it was 12 months ago. To top it all Etihad, which already owns about 24 per cent of Jet and has been seen as a potential White Knight in saving the day, is getting cold feet.

Under a potential deal in which Etihad would up its stake in Jet, the Gulf operator was to have invested between US$295 million and $350 million, on the understanding Goyal would reduce his stake and depart the chairmanship of the carrier. That, at least, has been achieved, with Goyal, who founded the carrier 25 years ago, exiting the chairmanship and board in late March.

Creditors are injecting up to US$218 million of “immediate funding support” into the airline.

Minority lenders that are part of the consortium that has lent to Jet have also agreed to grant priority status to funding that would be provided by the State Bank of India and Punjab National Bank, enabling them to provide emergency funding to keep the airline afloat until a resolution plan is in place.

A new buyer is being sought but that will take time and there are serious questions over who, if anyone, wants to risk it.

Reality has certainly hit home in Abu Dhabi, which is hardly surprising given in March the carrier reported a loss of US$1. 28 billion for its latest year, following a $1. 52 billion loss a year earlier. For anyone slow in the mathematics department that is $2. 8 billion of red ink in 24 months. It hardly puts the airline in a position to splash out on further offshore airline investment, particularly after earlier experiences with major stakes in Germany’s airberlin and Italy’s Alitalia ended in financial disaster.

As in Italy, India’s airline market represents an extremely high-risk gamble. Almost no-one is making money and even the national carrier Air India is in similar dire straits to Jet.

It is difficult to see where a solution lies. Goyal has gone but it doesn’t provide an immediate answer to Jet’s woes. The main player in all of this is the State Bank of India, which has held ongoing meetings with all the parties involved in an attempt to find blue skies for Jet.

As with many things in Indian aviation, the talking goes on… and on… and on. There is also a political aspect. The Narendra Modi government, which came to power on a strong platform of supporting businesses such as airlines, faces an election this year and it can’t really afford to have a major airline player collapse at this critical time. Does it step in and bail Jet out (at a time it is trying to free itself from State ownership of Air India)? Whatever happens – and signs say it is unlikely to happen soon – Jet faces the additional challenge of another trying year in Indian and international skies. Increasing competition from low-cost carriers, a weak rupee and high oil prices (taxes make jet fuel in India more expensive than almost anywhere else in the world) won’t allow it to turn any financial corners.

Despite all the gloom and doom, Jet hasn’t quite given up yet. In a recent letter to the Indian bourse it said the company is making all efforts to minimise disruption to its network… and is proactively informing and re-accommodating its affected guests.

“The company is actively engaged with all its aircraft lessors and regularly provides them with updates on the efforts undertaken by the company to improve its liquidity. Aircraft lessors have been supportive of the company’s efforts in this regard. ” Nevertheless, anyone who knows India’s often chaotic airline market, is aware the chances of Jet’s survival are getting thinner by the minute.

‘There are serious questions over who, if anyone, wants to risk it’