JET AIRWAYS NOSEDIVE


Jet airways, criris,
THE BOEING 777 PLANE

Started as a travel agency in 1993 by the founder Naresh Goyal to a gargantuan airline company, it is very excruciating to see how a leviathan company who once experienced complete hegemony in the Indian aviation industry now continues to nosedive. Currently the company is facing a strong headwinds in pursuing its operations because they are devoid of cash which leads to suspension of all flights and other activities.

Apparently, the morass of soaring fuel prices and loss of pricing power due to relentless competition is the main reason why all jet's fleet has been grounded. The decision to discontinue operation and grounding of jets can imperill 16000 direct jobs and Rs 8500 cr debt to banks. Now, this has caused a furore among Jet airways employees and a protest has been registered by many of them who clamours to revive the torpid airline . As their career is on the brink of extinction, it is quite palpable to erupt protest as losing a job is one of the vicissitudes of lifes.


Jet airways , jey airways crisis
STOCK PRICE OF JET AIRWAYS


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DOWNFALL OF JET AIRWAYS

Following the suspension of all operations by beleaguered airline, the stocks of Jet airways slumps by 31% in one day and this rapid plunge of stock caused panic among investors thereby they are withdrawing their shares.

Jet borrowed funds of over 8500 cr to government bank (mainly PNB and SBI) for investment and expansion purposes which has now come to nought. In April, 2019 airline demands emergency funding of another 400 cr from government banks to endeavour its operations which includes payment of fuel and other services and to earn some profit. But this is incongruous for banks to invest another 400cr in a dormant airline without any possible chances of payment.

Also, Jet airways management has asked the Government to release Rs. 175 cr to pay one month salary to its staff. Government also rejects its plea as it puts the government funds at stake and such largesse is largely ephemeral and will not help Jet airways to resurrect its operations.

THE PROBLEM

The embattled airline offered government of India to keep Boeing 777 planes as collateral in the exchange of funds to salvage the airline. The problem is that these planes are not fully purchased. Jet airways defaulted on a loan of EXIM (Export-import) bank through which the aircrafts were brought. This is the reason why Indian banks are unable to treat these planes as collateral.

There is urgent exigency of Rs.700 cr for bringing the grounded airline back in air and clawing back of its lost market share. Also the salaries of jet airways engineer, pilots and senior management have not been paid since janaury and the consolidated dues till march is reportedly adds up to Rs. 600 cr.

REASONS BEHIND THE DOWNFALL


COSTLY PURCHASE

Many aviation experts beleive that the real conundrum which the airline is experiencing can be traced back to 2006 when Jet airways acquired Air Sahara for $500 million in cash. This acquisition becomes an albatross around airline's Neck. Founder Naresh Goyal pays very scant attention to the advice of professionals who said he was paying to much. The reason behind downfall of the moribund airline is the intransigence of the founder. Apparently, the acquisition does'nt run well and as a result the airline faces huge vagaries in operation.

DECIMAL MANAGEMENT

The collapse of the Jet airways was described as the greatest debacle in the aviation industry. There is no question why the Founder, Naresh Goyal must bear the onus for his malfeasence which led the jet airways diving down inexorably. The decision to have a single management team headed by himself and running all Jet operation was a himalyan blunder.

Analyst says he should have had one team running the full service carrier and another running the budget flyer. Mr. Goyal was responsible for making bad investment which brings financial predicaments because of heavenly borrowing debt as they spent more than they earn.

BUDGET AIRLINE

Competition has become morass which makes it extremely difficult for jet airways to revive itself from huge losses following the cut throught competition in the aviation industry.Aviation sector has grown at a yearly average rate of 20% over the last four year, among the fastest in the world. 

Jet airways was the key beneficiary to december 2004 policy undertook by government, allowing indian airline with a minimum of 5 years of operation and a minimum of 20 aircraft (the 5/20 rule) to fly international routes. But this rule was later abolished by government in 2006 and replaced it with 0/20 which provides a major boost to Spicejet and Indigo, Go air to handle international flights. 

The airline failed to counter the highly successful low cost carriers airlines including Indigo, Spicejet and Go air thereby they bludgeoned the jet to reduce its ticket price thereby reduction in profit margins.

MERCURIAL OIL PRICES

As the Aviation turbine fuel is an indispensable factor for any airline company and it accounts for more than half of the cost for an airline company. The Fluctuating and Mercurial prices of turbine fuel can be described as a complete mayhem for Jet airways as they have no control over the soaring fuel prices, which exacerbates the situation because Jet owed hefty debts to banks and investors approximately 1400 cr which brings additional impediments to progress.

The soaring fuel prices makes it impossible for Jet airways to revive its operations and to earn profit and to pay debt.

jet airways, jet airways crisis


WHO CAN RESCUE JET

The airline is bereft of hope following the grounding of all jets , suspension of all operation and after failing in exploring every avenue for revival. The only panacea left for Jet airways is the advent of funds in the airline or binding bids of investors from potential investors. Etihad airways currently retains 24% stakes in the company. The shortlisted bidders - TPG capital, Indigo partner and National Investment and Infrastructure Fund (NIIF) have been issued bid document in April. 

Tata Group also showed interest for some time but later backed out. There were news doing the rounds that Hinduja group may invest Rs.1000 - Rs.1500 cr along with Etihad airways, State bank of India and a London based Adigroup, Adigro Aviation offered to invest Rs.2500 cr for 24.9% stake in Jet airways. But there is a lot of trepidation among investors associated with the survival of the airline. Apparently, the stake sale does not go through the airline which led the Jet airways land in Bankruptcy court.


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Comments

  1. UnknownJuly 6, 2019 at 8:22 AM

    Very helpful information. Do like this. Your traits are looking like you'll grow soon

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