Flight Plan

Will Jet and Air India survive the turbulence?

Anand Kalyanaraman/Ashwini Phadnis | Updated on April 02, 2019 Published on April 02, 2019

March, be it 2018 or 2019, has been a tumultuous month for the full-service carriers. Are things beginning to look up for the airlines? Ashwini Phadnis and Anand Kalyanaraman report

March is turning out to be a tumultuous month for carriers in India. In March last year, the government started the divestment process for the state-owned Air India and this March, Naresh Goyal was forced to step down as Chairman of Jet Airways.

The reasons for these two happenings are quite similar. Air India had been posting losses since its merger with Indian Airlines in 2007 and the carrier is estimated to have a debt burden of over ₹55,000 crore — a situation that warranted some action.

The situation is no better for Jet. The March 2018 quarter saw Jet post a huge loss of ₹1,036 crore compared to a profit of ₹602 crore in the year-ago period. This loss was a reversal from the profits in the earlier three quarters (June, September and December 2017) and pushed the airline’s full-year FY2018 bottom line deep into the red (₹767 crore). From then on, it was a rapid descent for Jet with big losses in each of the quarters thereafter — the airline’s total loss for the nine months ended December 2018 was about ₹3,200 crore.

Though there were no flight cancellations during Air India’s divestment, the situation for Jet was, and continues to be, serious. After the Directorate General of Civil Aviation cleared a truncated flight schedule for Jet as it had grounded over 70 aircraft because it had not been able to pay the lessors, reports came in on Tuesday that the airline had grounded 15 more aircraft.

John Nair, Head-business travel, Cox & Kings Ltd, says that Jet has been a big disappointment. “Over a year ago, Jet was still the preferred choice for corporate travellers but the erratic schedules over the last six to eight months have forced them to switch to other carriers,” he says.

The ones impacted the most are AI and Jet’s employees. Living with uncertainty for months has led to a loss of morale, particularly amongst Jet’s employees. In the latest hit, Jet is offering its Boeing 737 flight crew not only leave with pay but also a ‘five work-day and three off-day’ roster from April 11 to April 26.

The airline has also offered the flight crew additional break/sabbatical between April and September this year. The pilots have given the management till April 14 to pay their past dues, otherwise they are threatening not to fly the planes.

A glimmer of hope

In hindsight, Air India’s aborted divestment experience — the process came to an end in May last year as the airline did not find a buyer — provides a ray of hope.

Being in divestment mode meant that all important decisions, like hiring new people and inducting aircraft, were put on hold. But after the divestment fizzled out, the Maharaja has managed to bounce back. The airline has started new international services, including connecting Bengaluru to London and Mumbai to Frankfurt besides increasing frequency on the Delhi-Tel Aviv sector. Domestically, AI has started late-night flights (at fares lower than day flights) between Delhi-Coimbatore-Delhi, Bengaluru- Ahmedabad-Bengaluru and Delhi-Goa-Delhi and also connected Delhi to Nanded.

The government has also chipped in by providing money in the interim Union Budget 2019-20, for servicing the debt of the special purpose vehicle created to park the huge debt of the airline.

Even though the situation is still serious and Jet is some way off from seeing the light at the end of the tunnel, a consortium of banks led by State Bank of India has provided ₹1,500 crore to the airline.

The management is looking at getting another 40 aircraft back into the fleet by end April. In its glory days Jet Airways had a fleet of nearly 120 aircraft.

Further, lenders, who are now the largest shareholders in Jet, are proposing a new plan which will fund the airline through a rights issue, with the existing shareholders giving up a part of their stake to the new investors.

The plan envisages the airline raising over ₹5,000 crore through equity infusion by two new investors and also using other options. A clearer picture will emerge by June when the prospective winners will be announced.

Cautious optimism

Indiver Rastogi, President Global Business Travel, Thomas Cook India, feels that despite the trouble that Jet Airways is in currently and the turmoil that Air India went through, the general perception among the customers is that the two airlines are here to stay.

“Most people do not see the balance sheet of an airline before they board an aircraft. They normally look at other issues like on-time performance, safety record and comfort before deciding on their travel plans,” he says.

However, there is a word of caution here. Though both Air India and Jet are full-service carriers (and the only two experienced full-service carriers in India that fly both domestically and internationally), the third full-service carrier Vistara is still new and does not fly abroad yet.

Moreover, the situation has changed over the last one year in the aviation sector at home. Market leader IndiGo is facing a severe pilot shortage; it also posted its first ever losses during this time, the Boeing Max fleet (operated by SpiceJet and Jet) has been grounded, throwing schedules haywire, and there is still nothing definitive about the safety of certain Pratt and Whitney engines in the NEO aircraft (IndiGo and GoAir fly these planes). As a result, air fares have gone up and flyers are facing limited choices.

Published on April 02, 2019

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