Why is Jet Airways Failing?
Jet Airways Problems
Overview of Current Position of Jet Airways
In this article, we are going to discuss why is Jet Airways failing? What are the problems the company is facing? Lets overview the current position of Jet Airways.
- Jet Airways is an Indian international airline based in Mumbai, which has suspended all its flight operations on 17th April 2019. It was the 2nd largest airline in India. The company has a staff of almost 20,000 with uncertain futures. The company has a debt of almost Rs. 8,000-10,000 Cr.
- The lenders (for example the banks) haven’t released the emergency fund. And they haven’t done so as no new buyer for the company has been finalized yet. The stake of Naresh Goyal has comedown and the stake of lenders has become more than 50%.
- Now, the lenders are planning to sell this stake to a proper player. There were rumours that players like Tata Group, Etihad (an existing shareholder in the company), etc were interested in buying the share lenders have. But nothing couldn’t be finalized, emergency funds were also not released, therefore, all operations of Jet Airways came to a standstill.
- What happened that the company has reached this point? Where did things go wrong? Jet Airways used to be a very premium brand in the Indian aviation industry. This is the 2nd company to reach this point. The 1st company, like everyone knows, was Kingfisher. Kingfisher Airlines was closed down in 2012. While the fate of Kingfishers Airlines was decided in 2012, that of jet Airways is yet to be decided.
Mistakes That Brought Jet Airways to This Position
1.Purchase of Air Sahara :
- In 2006, Naresh Goyal had made a deal to buy the then airline Air Sahara in a full cash deal worth $500 million. The full cash deal means there was no restricting the holdings of the company, it was an outright deal. The whole company was bought and brought under jet Airways. Air Sahara was an low-cost airline which is why it was bought.
- This same mistake was made by Vijay Mallya. He had bought Air Deccan after which all the problems started. And the same problems also started with Jet Airways after they bought Air Sahara.
- All the advisors had recommended against the buying if Air Sahara, as the 2 companies wouldn’t have the required synergy together. But all these recommendation were ignored. The thinking behind Jet Airways buying Air Sahara and Kingfisher Airlines buying Air Deccan was that they didn’t want the concept of low-cost airlines to grow in India. And even if that grew then they wanted to be the one running them. Both the airlines thought that they were strongest companies in this industry. But this went completely against the 2 companies. Indigo, SpiceJet and GoAir developed excellent business models, this does not mean that they did not incur losses, but rather their agenda as a being a low-cost airline was clear. Thus, they didn’t face such problems.
2.Management of Airline :
- Air Sahara after the purchase was renamed as Jetlite. The company didn’t have a different management team. So, there was clear absence of focus towards the company.
- In 2015, the company decided to write off the whole business of Jetlite as it was not performing and the company was not able to focus on both the airline segments. But the damage had already been made till then.
- The company was already a market leader and was making profits but the decision to diverse in to low-cost airline segment as well might have been the reason behind Jet Airways being in the current position.
New Buyer’s Condition
- None of the buyers want Naresh Goyal to have any say in the company. Naresh Goyal can keep the minority stake it has but shouldn’t be involved in the decision making, that is in the management of the company.
- Naresh Goyal still wishes to be involved in the operations of the company. He is making efforts to get in to partnership with someone to come back in the company.
- But the new buyers have very firm hold on Naresh Goyal not being involved in the operations of the company.
Future Outlook of the this Situation
- The banks are trying to find buyers for the company.
- There are chances of government intervening as well as the jobs of 20,000 people are at stake.
- Things will get sorted out in the coming couple of months.
- One this is for sure, that Naresh Goyal will not be able to have any say in the company or involved in the company in any way.