Jet Airways appears to be the latest Indian airline teetering on the brink after it indefinitely postponed the release of its financial results for the three months to 30 June.
The carrier said in a statement released late on 9 August – the day they were scheduled to come out – that “the audit committee did not recommend the said financial results to the Board for its approval, pending closure of certain matters.” No indication has been given when the results will be released.
That delay has sent shockwaves throughout the country, with mounting reports suggesting that the carrier is facing a major cash crunch that could see it fail, as other Indian carriers have done previously.
A week prior, Jet issued a statement aimed at batting away speculation about its financial position and reaffirmed its commitment to seeking out greater cost savings and higher revenue growth. That was amid rumours that it would ask employees will be to take a salary cut.
Since then, it has clarified some media reports, but has given little detailed commentary on its financial situation. Nonetheless, at its annual general meeting on 9 August, chairman and majority owner Naresh Goyal reportedly said that he feels "guilty and embarrassed" as "lots of shareholders have lost money".
Over the past decade, Flight Dashboard data shows that the carrier has had inconsistent results, with it reporting a $119 million net loss for the 2018 financial year. Jet only recorded net profits for the 2011, 2016 and 2017 financial years.
Analysts tell FlightGlobal that Jet’s financial woes have been a long-time coming, especially with the entire Indian aviation sector fighting against higher oil prices and low yields.
OIL, TOIL AND (LOW-COST) TROUBLE
Priveen Raj Naidu, chief executive of Reapra Aviation Partners, says that crude prices remain “sorely high” with the Indian rupee continuing its depreciation against the US dollar. Moreover, airfares were not enough to cover the increased costs that airlines are carrying.
India continues to be a very price-conscious market, with most travellers valuing price over the type of service offered by the airline. That disproportionately affects full service carriers Jet Airways and Air India, which are largely forced to join the race to the bottom in fares rather than differentiate themselves based on product.
The last few years have also seen Jet face its own internal issues. Among them is the high turnover of top executives, which has led to a lack of continuity and consistency in management. Jet’s latest and present chief executive, Vinay Dube, is its fifth in the last decade. Coincidentally, as a strategic partner, Etihad was involved in the appointments of former chief executives Gary Toomey and Cramer Ball – both of whom had short stints at the airline, no longer than three years.
Dube’s appointment in August last year came as yields reached an all-time low in India, while rising fuel prices have made that cost item an even larger portion of an airline’s expenses.
“There are anticipations that Jet’s Q1 results will see much higher losses after a massive loss of Rs10.4 billion ($155 million) in the last quarter of FY18, which was badly impacted due to: a year-on-year increase in fuel prices of Rs3.6 billion, currency exchange loss of Rs1.56 billion compared to a Rs54 million currency exchange gain in Q4 FY17, as well as a maintenance charge of Rs2.53 billion,” says Naidu.
More pertinent is the sustained growth of low-cost carriers in India, such as perennial bloomer IndiGo and the resurgent SpiceJet.
Flight Fleets Analyzer shows that IndiGo operates a fleet of 171 aircraft, with a massive backlog of 429 on order. SpiceJet operates 58 aircraft with an orderbook of 172.
Financially, both low-cost carriers appear to be in a better position than Jet to compete in a tough Indian aviation market. IndiGo has consistently recorded net profits since 2009 and is looking to expand its international network with long-haul, low-cost operations, while SpiceJet is seeing a resurgence after achieving profitability for a third consecutive year following its near-collapse in late 2014.
Should the rumours of Jet’s cash crunch come true, the closure of India’s oldest private full-service airline would benefit its rivals. As well as the potential removal of a significant competitor, rival carriers would also be well placed to pick up former Jet pilots, as well as prime slots at international airports – particularly in the Middle East.
FlightGlobal Schedules show that although Jet is still dominantly a domestic player, it flies internationally to Toronto (Via Amsterdam), London, Paris, Hong Kong, Bangkok and Singapore. However, it operates to 10 international points in the Middle East, most notably, Abu Dhabi – the home base of its 24% equity partner, Etihad.
NEW PARTNERS IN WAITING?
Back in 2013, Etihad was a white knight partner when it took a 24% stake in Jet. As well as its $379 million cash injection into the Indian carrier, Etihad bought a controlling stake in the Jet Privilege loyalty programme, purchased and leased-back slots at London Heathrow, and sub-leased some of Jet’s Boeing 777-300ERs and Airbus A330s.
The two carriers also set out to build a complementary network, which saw Jet focus a number of its international passengers through Abu Dhabi, helping to feed Etihad’s global network. FlightGlobal Schedules data shows that in a week, Jet operates 186 return flights from various points in India to Abu Dhabi.
But with Etihad moving away from its equity partnership strategy and seeking to repair its own balance sheet issues after the failure of its investments in Alitalia and Air Berlin, Jet has effectively lost its biggest champion.
"This is an example where such strategic investment does not always work. Etihad has used Jet extensively to provide feed through its Abu Dhabi base and effectively curtailed their international operations," says Martin Consulting founder and chief executive Mark Martin.
He is more optimistic of the carrier’s growing partnership with the Air France-KLM Group, although he admits that “we also need to give Jet time to work out its commercial agreements” with KLM and Air France."
Jet, Air France and KLM implemented a codeshare deal in 2016 which saw the Indian carrier move its hub for North American flights from Brussels to Amsterdam-Schiphol, as well as a greater focus on Paris-Charles de Gaulle. It also co-operates closely with Delta Air Lines, which like Air France and KLM is a member of the SkyTeam Alliance.
In November last year, the three carriers expanded their partnership, looking to strengthen commercial ties, including the development of commercial and product offerings. They also talked of exploring ways of adding capacity between India, Paris and Amsterdam.
STRONG ENOUGH TO SURVIVE
For all the negativity surrounding Jet, Martin is optimistic that the carrier will survive, given its track record.
“As the oldest private airline in the country, you are bound to have ups and downs,” he explains. “Yes, we know there are challenges like rising fuel prices and the boom of low-cost carriers. But if any airline can balance out the 2008 financial crisis and still be alive, we are looking at a reasonable amount of sustainability.”
On deferring its quarterly results, he says that while Jet is the first listed airline to do so in India, it is not alone. In 2005, Lufthansa and Air Canada did likewise, and had to reschedule their respective annual general meetings by several times.
Some point out that the airline may have other assets that it can monetise, such as real estate. However, Flight Fleets Analyzer shows that out of the 120 aircraft it operates, only four (one 737-800, one 777-300ER and two ATR 72s) are owned by the carrier.
There are reports that Jet has sounded out various banks and private equity firms to seek additional capital. But Martin believes that Goyal knows better than to approach banks for loans or to divest his remaining 51% stake to third-party players.
To compound matters, Moody's affiliate ICRA downgraded Jet's credit rating to BBB- in May, citing its inability to pass on higher fuel costs to passengers amid a very competitive market in India.
“This is not the right time to push the market for debt, as the current lending terms are ridiculously crazy," says Martin. "What Jet can do is to file for bankruptcy protection – then we are looking at the carrier hanging around for two years more with a reduced working function.”
Source: Cirium Dashboard
