Jet Airways flies into oblivion

Accepting something inevitable is hard especially when the event actually happens. In recent months, the warnings for Jet Airways were written everywhere. But each stakeholder involved — promoters, lenders, aircraft leasing companies, pilots, rank and file employees, vendors, airline partners, potential investors, and the government — was always looking to someone else for help.

In the end, no one helped, and one of the best-known stories in Indian aviation came to an end.

While the blame game is on, no one other than the company’s management should be held responsible. Jet Airways fell because its cost structure was not sustainable. Its expenses were too high and the cash that it was generating was not sufficient to pay its expenses. Jet’s debt already stood at ₹8,000 crore. Subsequently, and up until the last moment, the new management team, led by banks, only sought to inject the company with more cash.

But simply borrowing more money and worsening the balance sheet with more liabilities was never the way to go. The new management team provided no details about how ongoing operating costs would be trimmed after any cash infusion; no plans about how to cut unprofitable operations; no strategy about whom to merge with; or how to raise additional revenue.

There’s some precedence for such a catastrophic failure. Recently, Wow Air, an Iceland-based low-cost carrier, ceased all operations overnight stranding passengers wherever it served, unwilling to endorse tickets over to other carriers to bring them back home to Reykjavik. But there’s little precedence for a country’s second largest airline by passenger volume and one with a proud legacy of nearly 25 years of private flying, to simply shut down, leaving 20,000 employees clueless and on the street.

Captain Asim Valiani, Vice-President of the National Aviator’s Guild (NAG), correctly says that the 2,000 pilots will have an especially hard time in the coming months. While West Asian and South Eastern carriers may be hiring pilots, it’s unlikely that all the Jet pilots could find jobs.

Many of the First Officers who occupy the right seat, he says, may have fewer than 500 hours of flying experience rendering them ineligible to apply for such international aviator roles.

Jet Airways has few tangible assets left. Most of its planes were leased. The DGCA has already redistributed its valuable gates in big hubs like Mumbai and Delhi to other carriers, fearing passenger disruption and price hikes. Jet’s brand as a full-service carrier, which it carefully built and nurtured over two decades, is of little value in a market which prizes low-cost flying.

Jet’s erstwhile partnership with Etihad, when it assumed the role of a feeder airline to the latter’s Abu Dhabi hub, is worth a lot less because Etihad itself is in deep trouble. Having gone on a buying spree to acquire sick airlines like Air Berlin and Alitalia, Etihad is reeling as those airlines declared bankruptcy. Etihad, which had a profitable arrangement with American Airlines, bungled that relationship losing valuable transatlantic income.

Failures common

Airline failures are common. Practically every major airline has failed at least once. But major airlines don’t strand passengers and ground their fleet. They figure out a way to make deep cuts, sell off their valuable assets, swallow their pride and merge — in short, do whatever necessary to be an ongoing concern. Facing a severe cash crunch, the Ford Motor Company in 2006, mortgaged all of its assets - buildings, plants, machines, offices, even its famous oval blue logo - to finance an overhaul. Today, Ford is back to being a profitable company. Jet’s fault is that it did not do any of this.

As post-mortems of Jet Airways are written, one thing will become clear. India nurses a stigma against seeking bankruptcy protection as though doing so is hurtful. But going through an organised process designed to allow struggling businesses to restructure finances is akin to a sick patient going to a doctor. Treatment may be painful, but, at least, the patient may live.

Had Jet Airways approached the NCLT in December, none of this would have happened. Sure there would have been haircuts, but haircuts are needed when the hair grows too long. The cuts would have been shared across all of Jet’s stakeholders.

The management could have then used the promised cuts to reform its cost structure and proposed a plan for revenue growth. Operating under a legal framework, which has the power of enforcement, Jet Airways could have emerged from bankruptcy 12-18 months later. And it could have been flying in the meantime.

Instead, what we have now is nothing but a fond memory.

The writer is Managing Director of Rao Advisors LLC, US

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