It looks like Jet Airways Ltd.’s luck has finally run out. India’s oldest privately owned airline is on
the verge of shutting down all its flights -- it already has perhaps fewer than 10 aircra active --
because it simply doesn’t have enough working capital. It’s more than a billion dollars in debt and
has lost money for the last four quarters.
On one level, you could argue that this is a good sign for India: Its institutions are holding up. Stateowned banks are Jet’s biggest creditors and they seem unwilling to throw more money at the
airline without a clear revival plan. This is a big change from the past, when they kept supporting
one of Jet’s rivals, the ill-fated Kingfisher Airlines Ltd., long aer it seemed rational to do so.
News also broke a few days ago that Jet’s founder, Naresh Goyal, was no longer bidding for the
banks’ stake in the airline, perhaps because other shareholders wouldn’t play along. Too oen
India cash-strapped companies have managed to get their debt restructured, with state-owned
banks taking a haircut while the “promoters” who control crucial amounts of equity maintain
control of the company. That is an unhealthy lack of accountability and we should all be glad it
doesn’t seem to be happening in this case.
Jet has 23,000 employees and a devoted fan base, yet isn’t an easy company to love. I say its luck
has run out because in the past it consistently seemed to benefit from government intervention
that drove many of its full-service competitors out of the market. It’s the only survivor from the first
round of private Indian airlines that started flying in the 1990s -- and, in many Indian sectors, that
usually means that you’ve managed the government much better than your peers have.
In the end, however, the market wins out. If you are competing against low-cost airlines that still
somehow provide equivalent service in economy class -- not to mention a full-service airline, Air
India Ltd., that’s state-owned and can absorb whatever losses it wants -- you can’t dodge fate
forever.
17/04/19 Mihir Sharma/Deccan Herald
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the verge of shutting down all its flights -- it already has perhaps fewer than 10 aircra active --
because it simply doesn’t have enough working capital. It’s more than a billion dollars in debt and
has lost money for the last four quarters.
On one level, you could argue that this is a good sign for India: Its institutions are holding up. Stateowned banks are Jet’s biggest creditors and they seem unwilling to throw more money at the
airline without a clear revival plan. This is a big change from the past, when they kept supporting
one of Jet’s rivals, the ill-fated Kingfisher Airlines Ltd., long aer it seemed rational to do so.
News also broke a few days ago that Jet’s founder, Naresh Goyal, was no longer bidding for the
banks’ stake in the airline, perhaps because other shareholders wouldn’t play along. Too oen
India cash-strapped companies have managed to get their debt restructured, with state-owned
banks taking a haircut while the “promoters” who control crucial amounts of equity maintain
control of the company. That is an unhealthy lack of accountability and we should all be glad it
doesn’t seem to be happening in this case.
Jet has 23,000 employees and a devoted fan base, yet isn’t an easy company to love. I say its luck
has run out because in the past it consistently seemed to benefit from government intervention
that drove many of its full-service competitors out of the market. It’s the only survivor from the first
round of private Indian airlines that started flying in the 1990s -- and, in many Indian sectors, that
usually means that you’ve managed the government much better than your peers have.
In the end, however, the market wins out. If you are competing against low-cost airlines that still
somehow provide equivalent service in economy class -- not to mention a full-service airline, Air
India Ltd., that’s state-owned and can absorb whatever losses it wants -- you can’t dodge fate
forever.
17/04/19 Mihir Sharma/Deccan Herald
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