Decoding Jet Airways financial mess: What lies ahead for India's ailing second largest airline

The current saga at Jet Airways has once again raised the key question: When will the airline’s operations take a U-turn and soar once again in the skies? The fund crunch in the strife-ridden airline has repeatedly resulted in the reduction of both fleet capacity and flight schedules, with a recent announcement that an additional seven aircraft have been grounded due to non-payment of outstanding amounts to lessors. Media reports have also pointed to low staff morale at the airline due to delays in payment of salaries . This has taken a toll on the domestic market share of Jet Airways which was approximately 14 percent in November 2018 vis-à-vis 21 percent levels in May 2014, as per various reports. Shares of Jet Airways fell by over 6 percent on Thursday after the company said seven more aircraft have been grounded due to non-payment of lease rentals. Shares of the company dropped 6.15 percent to Rs 211 on BSE. Shareholders of Jet Airways had recently given their approval for the conversion of the bank loan into shares. It would enable the consortium of lenders to become the largest shareholders in this troubled airline. The consortium of lenders had also estimated a funding gap of nearly Rs 8,500 crore in Jet Airways and various options, including raising equity along with debt restructuring plans, amongst other options. [caption id=“attachment_5554021” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Clearly, the consortium of lenders needs to find a quick resolution to Jet Airways’ growing problems and induct a suitable player in the cockpit of this beleaguered airline. There is no clarity yet as to whether Abu Dhabi-based Etihad Airways which holds a 24 percent stake in Jet Airways will be willing to play a key role in the turnaround plan. There is an urgent need to take corrective steps with regard to the falling domestic market share of Jet Airways, in a bid to ensure the long-term viability of the airline. The new partner who will bailout Jet Airways will also have to make a decision about how to deal with the growing competition and market share of low-cost carriers like SpiceJet and Interglobe Aviation, which runs Indigo. There is an urgent need to restore employee morale and to ensure that passengers get world-class customer service while flying with the airline. Jet Airways, over the past 25 years has been a leading full services airline and it was often viewed as the benchmark for hospitality services in the sky. Senior officials at Jet Airways pointed out to their focus on profitability rather than market share in the domestic aviation market. In addition, they pointed out to regular releases issued to the media by the company relating to current developments. The financial viability of the broader airline sector has been a key concern for lenders and shareholders, given the bankruptcy of the once popular Bangalore-based Kingfisher Airlines in mid-2012. Kingfisher Airlines is estimated to have defaulted on nearly Rs 9,000 crore of bank loans. Meanwhile, Jet Airways had not provided its latest balance sheet for the December 2018 quarter while declaring its quarterly results and it has made analysing its loan/liabilities outstanding rather difficult. Naresh Goyal, promoter of Jet Airways, held a 51 percent stake in the company at the end of the December 2018 quarter. The change in the shareholding pattern of Jet Airways is awaited with the consortium of lenders now getting shareholder approval for majority control of the airline. Financial woes at Jet Airways Earlier, Jet Airways reported a net loss of Rs 587.77 crore for the third quarter of the current financial year versus a net profit of Rs 165.25 crore a year earlier. And the key input cost – aircraft fuel expenses jumped 29.8 percent y-o-y to Rs 2,387.7 crore in the December 2018 quarter, and the resulting weak financial performance of the company. The airlines had also highlighted its rather difficult financial position while declaring its December 2018 quarter results and it had pointed out the negative net worth of Rs 10,370 crore at the end of the third quarter of the current fiscal. A negative net worth of a company indicates a weak financial situation in which a company’s liabilities exceed its assets plus shareholders’ equity. In addition, the airline has also pointed out that its current liabilities exceed its current assets by Rs 9,610.16 crore at the end of the third quarter of the current fiscal. Clearly, Jet Airways needs to fly a different path and once again restore its position as a leading player in the Indian aviation sector.