Jet Airways: Naresh Goyal Steps Down, Lenders Extend Lifeline

Naresh Goyal quit as chairman of Jet Airways (India) Ltd., the carrier he founded 25 years ago, paving the way for lenders to take control of the airline crippled by a cash crunch.

Kumar, however, remains cautious. “I am not giving any guarantee that everything will be positive. I am only giving you my assessment of the situation. But there is a good possibility that a lot of investor interest will come in.”

Lenders would have wanted to exit the asset as quickly as possible but a lot of time was “wasted” in ironing out the differences between the two promoters, he said. “Today’s development ensures that new investors can evaluate the value of the enterprise and they can submit their plans of how will they revive. The process will start immediately. We will be appointing merchant bankers to kickstart the process.”

Meanwhile competitor SpiceJet’s chairman and managing director Ajay Singh said Jet’s problems highlights the structural issues India’s airline industry faces.

The full-service airline has been in trouble due to a mounting debt of over Rs 8,500 crore (over $1.2 billion)—with State Bank of India and Punjab National Bank having the highest exposure at nearly Rs 2,000 crore each. It has not only delayed payments to banks, vendors and employees, but has also been forced to ground 54 planes due to non-payment to lessors. The distressed airline has also suspended services on 13 more international routes.

Back in 2013, when the airline was struggling due to mounting losses and high debt, U.A.E.-based carrier Etihad Airways PJSC came to its rescue by paying close to 50 percent premium to the prevailing market price to acquire a 24 percent stake in the Indian airline. The airline had also sold stake in its loyalty programme, while it received a bank guarantee of $150 million from Etihad.

Etihad, meanwhile, has problems of its own. The Gulf carrier, Bloomberg reported, posted a loss of $1.28 billion in 2018, widening its deficit over three years to $4.8 billion. This has forced Etihad to embark on a cost-cutting plan that includes discontinuing select global routes. It bowed out of the resolution plan for Jet Airways last week, BloombergQuint reported citing people in the know.

Still, Jet Airways needs another fund infusion to continue operations due to its inefficient operations.

Jet Airways has a high-cost structure as it’s a full-service carrier. Competition from low-cost carriers forced the airline to charge less, eroding its financials. A rise in crude oil prices, local taxes on jet fuels—which are among the highest in the region—and a weaker rupee only worsened the situation. All of this led to a decline in Jet Airways’ market share more than halving in the past decade to less than 12 percent.