Rival carriers, including foreign players, have added capacity and routes.
Jet Airways’ loss is others’ gain. As Jet Airways disappeared from the radars, rival carriers, especially money-loaded foreign airlines, are jumping in to take advantage of the gap in the Indian aviation market. Most of them have taken steps to add capacity, add routes and fill in the gaps created by Jet Airways.
The grounding of Jet Airways put a spoke in India’s fledgling aviation sector. Aviation pundits are still wondering about the factors which caused the downfall of an international carrier which was a major player on several lucrative sectors. It is still astounding that Jet Airways is down with a huge debt. Don’t blame the fluctuations in aviation fuel price or India’s age-old red tape for the fall. It is pure mismanagement of funds and failure to gauge the under-currents in the aviation sector.
Jet Airlines failed to learn lessons from its erstwhile rival Kingfisher. Failure to prepare is to prepare to fail. Instead of focussing its attention on the needs of its nearly billion client base, the Jet management under Naresh Goyal focussed on various ways to fleece the company. Funds were misused and budgets were compromised to generate easy funds to settle dubious deals. Survival in this sector needs financial discipline and the management’s agility to tide over crisis. The competition in the market is tough and in some cases the profits are mere 2 cents per ticket.
Kingfisher Airlines, founded by the “King of Good Times” Vijay Mallya, ceased operations in 2012 after failing to clear its dues to banks, staff, lessors and airports. SpiceJet’s tryst with bankruptcy was halted when its founders returned to regain control and revive the company. The erstwhile Maharajah—state-run Air India Ltd—is surviving on bailouts worth billions of dollars from the government. Apart from Etihad, Singapore Airlines and Air Asia have also set up local ventures, but they are also making a loss.
What went wrong with Jet Airways is an open secret. The Ministry of Corporate Affairs (MCA) will soon ask the Serious Fraud Investigation Office (SFIO) to probe the alleged diversion of funds and writing off of investments by Jet Airways. The fresh investigation follows recommendation given by the MCA’s Mumbai regional office after inspecting the airline’s books.
In Jet Airways’ preliminary probe, the Registrar of Companies, RoC, (Mumbai) told the MCA that it has found violation of Companies Act and unaccounted investments, official sources said, adding the natural way forward is an SFIO probe.
The SFIO will now look into Jet Airways’ written-off investments in various subsidiary companies and try to source where they have landed. The SFIO will also start the process for seeking personal appearance of the company’s then top management in an attempt to find out why the company suddenly posted a loss in the fiscal year 2018 after a string of profits.
The company had received infusion of funds in the form of Etihad’s investments twice during the period. In his complaint, whistle-blower Arvind Gupta had alleged that Jet Airways’ promoters were trying to siphon
Rs 5,125 crore from the airline’s books. The RoC Mumbai has completed the books’ inspection of Jet Airways as part of its preliminary investigation before turning to SFIO for a full-fledged investigation.
The RoC investigation was initiated last August after the company deferred its first-quarter FY19 results the same month. The RoC investigation followed a complaint by Arvind Gupta, who was also the chief complainant in the ICICI-Videocon case.
In the complaint, Gupta also alleged that the audit committee was unable to prevent the diversion of funds. Jet Airways and JetLite brands undertook transactions with companies owned by promoters in the guise of selling and distribution, Gupta alleged. The Income Tax department in its February report had already found tax evasion of over Rs 600 crore at Jet Airways.
Tax evasion, tax frauds, spiking the shares…even Hollywood was interested in the money matters of the aviation sector. Remember Wall Street’s Gordon Gekko. The role immortalised by thespian Michael Douglas, which won him an Oscar. Gekko was plotting to invest in failing Bluestar Airlines to mint a fortune. Surprisingly, there are some parallels with Jet’s story.
Goyal is now ready to invest Rs 250 crore in the grounded airline. Is it too late? Once a miss is always a miss. Goyal sent an emotional letter to employees, reigniting hopes of reviving the airline. In the letter, he mentioned the availability of Rs 250 crore “from a group company.” Surprise! Surprise! He is also ready to pledge his shareholding in the airline to ensure that the airline survived. What a drama? Hope there will be some takers in Bollywood.
Goyal failed to stem the rot in his company. Despite a huge client base and availability, besides a solid business partner like Etihad, he spoiled an opportunity to put India on top of the global aviation sector.
Despite the setback of Kingfisher and Jet Airways, things are not always grim with the Indian aviation sector. There are some shining examples like IndiGo. The low-cost airline operated by InterGlobe Aviation Ltd has managed to consistently make money with a tight lid on costs and lucrative maintenance and engineering contracts negotiated as part of large aircraft orders. In terms of jet fleet size and passengers carried, IndiGo is the seventh largest carrier in Asia with over 46 million passengers carried in 2017. The airline operates flights to 66 destinations—51 domestic and 15 international.
The airline was founded as a private company by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based expatriate Indian, in 2006. It took delivery of its first aircraft in July 2006 and commenced operations a month later. The airline became the largest Indian carrier in passenger market share in 2012. The company went public in November 2015. In 2011, IndiGo placed an order for 180 Airbus A320 aircraft in a deal worth $15 billion. In January 2011, after completing five years of operations, the airline got permission to launch international flights. The 13-year-old airline has now consolidated its position as the market leader in India now.
SpiceJet is also gathering momentum. Its chairman Ajay Singh has some altruistic ambitions to serve customers. He believes in providing affordable air travel to citizens nationwide as a primary responsibility. Singh says that SpiceJet has the potential to change the lives of Indians forever. SpiceJet has already signed up for 22 out of the 56 de-registered B737s which belonged to Jet Airways. It is planning to become a business class service provider rather than a low-cost carrier.
The veterans are also now back in the business. Tata, the pioneers of Indian aviation sector, has launched Vistara in a tie-up with Singapore Airlines. The airline had carried more than two million passengers by June 2016 and as of May 2017, has a 3.3% share of the domestic carrier market, making it the sixth largest domestic airline. The airline serves 24 destinations with a fleet of Airbus A320 aircraft.
Another one in the growing list is Mumbai-based GoAir owned by the Indian business conglomerate Wadia Group. In October 2017, it was the fifth largest airline in India with an 8.4% passenger market share. It commenced operations in November 2005 and operates a fleet of Airbus A320 aircraft in all economy configuration. As of May 2019, the airline operates over 230 daily flights to 28 destinations, including 24 domestic and four international destinations, from its hubs at Mumbai, Delhi, Bangalore, Kolkata and Kannur.
For any potential investor, it’s going to be a tough call to weigh up the options between investing in Jet Airways and starting a new airline from scratch. In many ways, a brand new airline would be easier to get into the skies than to revive Jet Airways. Even so, nobody is giving up on the carrier yet, so it’ll be interesting to see if they really can be saved.
Jet’s loss is others’ gain. As Jet Airways disappeared from the radars, rival carriers are jumping in to take advantage of the gap in the market. Most of them have taken steps to add capacity, add routes and fill in the gaps created by Jet Airways. National carrier Air India has also chipped in to benefit from the crisis. Air India Chairman Ashwani Lohani has asked the State Bank of India to lease Jet Airways’ five Boeing 777s to his carrier. They want to add five additional flights to their schedule: Delhi to Dubai, London and Singapore, as well as Mumbai to Dubai and London. The advantage of Air India is its vast network and the availability of resources at hands length. But it is high time the Maharajah took some lessons from Turkish Airlines. Air India’s plan to convert Delhi as a hub and facilitate several national and international services through Spoke model failed miserably. At the same time, Turkish Airlines opened its new airport in Istanbul to try the same model with aircraft and a highly spirited workforce.
The results of India’s Parliamentary elections will be out on 23 May 2019. Whoever comes to power will unveil new programmes to implement their election manifestos. With a GDP growth of 7%, India will add millions to its burgeoning middle class—a demographic segment which prefers to catch a flight instead of taking a train or driving to a destination. So there is a good demand for cheap air tickets in India. According to India Business and Economic Forum, India’s aviation industry is expected to witness Rs 35,000 crore (US$ 4.99 billion) investment in the next four years. The Indian government is also planning to invest US$ 1.83 billion for development of airport infrastructure along with aviation navigation services by 2026.
Prior to the Jet debacle, India’s domestic air passenger volume was the fourth highest among the major aviation markets such as Australia, Brazil, China, Japan, Russia and the US. India’s domestic passenger traffic growth was succeeded by that of Brazil at 3.2%, Japan at 4.2% and Russia at 14.2%. The country’s domestic available passenger capacity—measured in available seat kilometres (ASKs)—stood higher by 4.7% in March. It was followed by Russia at 11.1% and preceded by China at 4.4%.
When the dust settles around the latest airline fiasco, it will be interesting to see who is still proudly soaring high and who is taxiing to the hangar.