Jet is in deep waters, and an unlikely candidate for survival without a transfer of ownership to stronger hands. A report in The Economic Times notes that the airline has to repay Rs 6,000 crore debts in 2018-19, when its daily losses are around Rs 10 crore and net worth negative at just under Rs 5,000 crore. Its shares should be valued at nothing, and the market capitalisation of over Rs 3,000 crore (around noon on 13 August) represents a triumph of hope rather than reality.
The airline business is easy to get into with minimal initial capital, for you can lease aircraft, hire pilots and ground crew, and pay the landing charges from initial cash flows. As long as cash flows from ticket sales cover your variable costs, you can easily stay afloat. For a while. But the real test comes when fuel costs soar, and the whole cash-flow situation tanks where fares can’t be easily raised. In this scenario, the only promoters who can handle the rough weather are those with deep access to capital. Goyal is not one of them.
This is what happened with Kingfisher, which relied on bank loans to stay afloat when what it needed was more equity.
For Vijay Mallya, Kingfisher was like a trophy spouse, that went with his flashy lifestyle. He invested in sinking Air Deccan on the assumption that scale will give his viability. It did not.
Goyal did not make the same mistake, of treating Jet like a trophy spouse to flaunt at parties, but his business model was simply not good enough, and his ability to raise capital was weak given his decision to keep controlling interest when Etihad picked up a minority stake after giving him life-saving capital some years ago.
He ought to have given up control in 2015; now he will be compelled to let go of his baby on worse terms. He has two options: hang on and let his airline sink further, or give up control and save it.
13/08/18 R Jagannathan/Swarajya
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The airline business is easy to get into with minimal initial capital, for you can lease aircraft, hire pilots and ground crew, and pay the landing charges from initial cash flows. As long as cash flows from ticket sales cover your variable costs, you can easily stay afloat. For a while. But the real test comes when fuel costs soar, and the whole cash-flow situation tanks where fares can’t be easily raised. In this scenario, the only promoters who can handle the rough weather are those with deep access to capital. Goyal is not one of them.
This is what happened with Kingfisher, which relied on bank loans to stay afloat when what it needed was more equity.
For Vijay Mallya, Kingfisher was like a trophy spouse, that went with his flashy lifestyle. He invested in sinking Air Deccan on the assumption that scale will give his viability. It did not.
Goyal did not make the same mistake, of treating Jet like a trophy spouse to flaunt at parties, but his business model was simply not good enough, and his ability to raise capital was weak given his decision to keep controlling interest when Etihad picked up a minority stake after giving him life-saving capital some years ago.
He ought to have given up control in 2015; now he will be compelled to let go of his baby on worse terms. He has two options: hang on and let his airline sink further, or give up control and save it.
13/08/18 R Jagannathan/Swarajya
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