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Is Jet Airways Shutdown Really Temporary? Why Getting It Back in the Skies is Easier Said Than Done

Any potential investor would want to compare the costs and advantages/disadvantages of starting an airline from scratch versus getting Jet back to the skies.

Sindhu Bhattacharya |

Updated:April 20, 2019, 7:34 PM IST

New Delhi: Jet Airways has been grounded for now, even as its lenders and the management remain hopeful of a buyer coming forward to resuscitate the moribund airline. This is easier said than done, however good the intentions of all the stakeholders involved in its rescue may be.

A sizeable number of Jet’s aircraft have been repossessed by lessors and most of its most coveted airport slots - international as well as domestic – have been farmed out to other airlines since airports remain capacity constrained and they cannot afford to wait in perpetuity for an airline to use these precious slots. Employee salaries remain unpaid for several months and dues to vendors on top of the overall debt on the airline’s balance sheet are daunting, for even an intrepid investor.

On the other hand, among the assets worth considering are Jet’s owned aircraft and its loyalty programme - Jet Privilege. And as some sector experts have been pointing out, just about the brand name of Jet remains (apart from owned aircraft and loyalty programme) and it may become tougher if not near impossible to get it back to the skies again.

Any potential investor would perhaps also want to compare the costs and advantages/disadvantages of starting an airline from scratch versus getting Jet back to the skies.

Not only will any potential investor need to take care of the debt on Jet’s books (which is at least over Rs 8,000 crore) and pay off mounting vendor dues, it will need to further invest sizeable funds to kick start operations. This is evident from the initial promise by lending banks to infuse emergency funds into the airline and their subsequent reluctance to come forward with the money.

Banks rightly realised that a small amount of emergency funding would not be enough to keep the airline flying. Some news reports suggest that instead of the Rs 400 crore sought by the Jet management earlier this week as critical emergency funding, the lenders were offering only Rs 1-2 crore daily so that five aircraft can be operated by the airline with minimal staff, which was not feasible. Therefore, the management declined to implement this plan.

The lenders’ initial plan, of converting their debt into equity at a princely sum of one rupee, was anyway thwarted when the Supreme Court ruled against the February 12 circular of the Reserve Bank of India last month, under which the conversion from debt to equity was to be done.

Besides all these challenges, there also remains the issue of urgency. Letting Jet Airways fly and keeping the business operational was a top priority for the government these last few weeks as Lok Sabha elections pushed it to save over 16,000 jobs from vanishing.

This meant the ministries of Civil Aviation, Finance and Petroleum & Natural Gas along with some of the top bankers at state-owned banks were involved in saving a sinking Jet. The rescue of Jet was seen as being particularly important for a government which has been facing continuous ridicule over lack of jobs through its five-year term.

But now, as all valiant efforts to keep Jet flying have failed, will the government arms involved in its rescue show the same alacrity that was evident in the recent past in roping in an investor? After all, the lenders themselves have said that the bidding process would only be completed by May 10. Whether the bids will fructify into a sale remains to be seen.

But here’s an optimistic scenario: two of the reported bidders which have expressed an interest in investing in the airline are private equity funds TPG Capital and Indigo Partners (the other two are the National Infrastructure Investment Fund and Etihad Airways).

Among the potential bidders, the two private equity players are best suited to manage a dying business and bring it back to life since doing this is a part of their core DNA. So if either of the two funds bags Jet, the airline stands a chance. There is also some merit in considering Jet’s future if Abu Dhabi-based Etihad Airways bags the airline. Etihad is the only potential bidder with prior airline experience and with Jet’s valuation at rock bottom, it will likely get a toehold in the fast growing Indian market quite cheap.

But as pointed out earlier, reviving Jet is easier said than done. Will potential investors be willing to not only pump in mega bucks to save this airline but also negotiate the complicated debt-equity conversion by banks and overcome myriad other challenges which a grounded airline will pose?

But most of all, will a revived Jet Airways be able to once again offer world class service it was once known for? Does India really need a new full service airline – which offers hot meals and other bells and whistles – where the business model lends itself to perpetual losses as seats are more often than not being sold at a loss and costs keep mounting? These and many more questions will need answers before the Jet conundrum can be solved.

The author is a senior journalist. Views expressed are personal.

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