This Article is From Apr 17, 2019

Jet Airways Crisis Explained In 10 Points

Aviation analysts say Jet Airways' Naresh Goyal's failure to find a strategic investor to pump money into the carrier extended the airline's losses.

Jet Airways Crisis Explained In 10 Points

Jet Airways cancelled all its domestic and international flights (File)

New Delhi: Jet Airways, the cash-starved Indian carrier, has suspended all operations from Wednesday night after the State Bank of India-led consortium of lenders turned down its request for emergency funds. The airline, founded by Naresh Goyal, was under Rs 8,000 crore debt and was struggling to stay afloat. Until recently, the airline was the second largest carrier in India by market share. So where did it all go wrong?

Here are 10 points that explains the Jet Airways crisis:

  1. Jet Airways owes Rs 8,000 crore to lessors, suppliers, pilots and oil companies. The airline had only five jets left after dozens of others were seized by creditors in recent weeks. The lenders were reportedly searching for prospective buyers for the beleaguered company. The carrier had asked for Rs 400 crore as emergency fund. After it was denied, the decision to ground the remaining planes was taken.

  2. Many aviation experts believe the start of Jet's financial troubles can be traced back to the 2006 purchase of Air Sahara for $500 million in cash, news agency AFP reported.

  3. Naresh Goyal reportedly went ahead with the purchase despite being advised against it by his associates. His advisors said he was paying too much for Air Sahara, the agency reported.

  4. The budget carrier was rebranded "JetLite" but it led to a massive loss of money. In 2015, Jet Airways wrote off its entire investment. "The acquisition is still a millstone around the company's neck," Devesh Agarwal, editor of the Bangalore Aviation website, told AFP.

  5. Aviation experts say the Jet management underestimated low-cost carriers like IndiGo, SpiceJet and GoAir. They were offering tickets at a lower price. They also launched flights on new routes, but Jet focused on corporates. 

  6. "Jet always catered to corporates and failed to recognise that low-cost carriers were attracting customers who were price sensitive," industry analyst Amrit Pandurangi told AFP.

  7. Mr Goyal's management style is also in question, the experts said. They said his decision to have a single management team, headed by himself, running all Jet's operations was a crucial mistake. The experts said the management spent more than it earned.

  8. "Jet lacked a concrete business model and fiddled with it often, which confused investors, (and) passengers alike," said Mr Agarwal.

  9. The fluctuations in global crude prices might have also contributed to its collapse. The situation was made worse by the weak rupee, which ensured higher fuel costs for the airlines. Soaring oil costs and the Indian rupee hitting record lows last year affected all Indian carriers. But the others were more resilient."Jet Airways failed to manage its balance sheets and was caught out by these cyclical changes in the industry," Mumbai-based economist Ashutosh Datar told AFP.

  10. Aviation analysts say Mr Goyal's failure to find a strategic investor to pump money into Jet extended the airline's losses. Talks at the end of last year with tea-to-steel conglomerate Tata failed to go anywhere, while Etihad Airways reportedly refused to increase its stake because Mr Goyal was at the helm.

With inputs from AFP