Study of the downfall of Jet

Airways:

MBA M&S class of 2020

Section A

By:
Prankur Sharma. (A-25)
Aaradhya Agarwal. (A-27)
Puneet Gupta. (A-30)
Manisha Jha. (A-66).
HISTORY:

On 1 April, 1992 Jet Airways was incorporated as a private company with limited liability
under the Companies Act. They began operations as an Air Taxi Operator on 5 May, 1993 with
a fleet of 4 leased Boeing 737 aircraft. On 14 January 1995 they granted scheduled airline
status. On 1 July, 1996 it becomes a deemed public company Jet Airways became a deemed
public company. Jet Airways was converted into a private company on 19 January, 2001 and
later it becomes a public company as on 28 December, 2004. Mr. P.V.V. Chalam and Mrs.
Anita Goyal were the Shareholders at the time of incorporation which were later transferred to
Tail Winds on 12 May, 1994, and after that Mr. Naresh Goyal holds them on behalf of Tail
Winds in terms and conditions of an RBI approval letter No. EC.BY.CO (S)
250/2251/TS/93/94 dated 30 December, 1993. Pursuant to an application dated 12 March, 1993
made by Jet Airways, the FIPB by its letter No. 267/FC/93/NRI dated 28 June, 1993 granted
its approval to the foreign collaboration proposal of investment in Tail Winds in ratio of 60%
by Mr. Naresh Goyal, 20% by Gulf Air & 20% by Kuwait Airways. In return Tail Winds held
100% of the Equity Share capital of Jet Airways. The MoCA on its letter dated 17 April, 1997
directed Jet Airways to take steps for withdrawal of Equity Shares which held, directly or
indirectly, by foreign airlines pursuant/resolution to the Government of India's policy on
foreign equity and NRI/OCB equity participation in the domestic air transport services sector.
Consequently, with effect from 5 October, 1997, Mr. Naresh Goyal was able to acquire the
20% Equity Shares from each of Gulf Air & Kuwait Airways, respectively, and became the
100% owner of Tail Winds which is an NRI/OCB and currently owns over 99.99% of its Equity
Share.
Jet Airways is the second of India's two major airlines based in Mumbai, Maharashtra, both,
in terms of market share and passengers carried.
 51% of Jet airways owned by Naresh Goyal
 Operates over 1000 flights daily to 76 destinations worldwide.
 Its main hub is Mumbai, with secondary hubs at Delhi, Kolkata, Chennai, Bengaluru
and Pune. It has an international hub at Brussels Airport, Belgium
 It AIRBUS A330-200, AIRBUS A330-300, BOEING 737-800, BOEING 777-300ER,
BOEING 787-9 ETC.
 Slogan, “The Joy of Flying “ About Jet Airways

Started in 1993 by Naresh Goyal with 4 leased Boeing 737 aircraft, Jet Airways was a success
for many years. However, in August of 2018, the company deferred the second quarter of the
year. It was a hint that something is wrong with the company’s finance. Hence, in the same
month, DJCA (Directorate General of Civil Aviation) conducted a financial audit of Jet
Airways. It was due to the reason that deferring the employees’ salaries can affect their
behaviour towards their jobs.

In the same month, Jet Airways posted a loss of Rs.1323 Crores.

In September of 2018, the Income Tax department conducted a survey in the Delhi and
Mumbai office of Jet Airways. The company was then alleged for financial misappropriation.
Reasons for failure

There are many reasons for the failure of Jet Airways. Here are just a few of them:

1. Merger: Merging Sahara Airlines with Jet Airways can be called as a mistake of Jet
Airways. Sahara was acquired by Jet Airways for $500 million which was not an
appropriate price of the company.

2. Rebranding Sahara: This can be called as the biggest reason for the failure of JetLite.
Jet Airways rebranded Sahara Airways as JetLite. Due to this, the customers of Sahara
were out of Jet’s hands.

3. Mismanagement: Of course, management is the backbone of any company. However,

the founder of Jet Airways, Naresh Goyal decided to lead the company on his own and
not to hire any professional for it. Many people say that he took many bad financial
decisions. Along with this, he only had one management team for all the operations.
Managing an airline company which has acquired another company needs at least 2
management teams.

4. Full-service airline: The company was operating as a full-service airline. Operating in

India as a full-service airline is not an easy task. You need very strong financial support
and customer relationship. That is why most of the companies focus on the middle-
class people and keep the prices as low as possible.

5. Drowning in Debts: Jet Airways didn’t care about the money even when they had none
of it. They kept on taking debts and spending more than their earnings. The employees
get many perks and all of them were happy. But spending more than what you earn is
always a bad decision.
  Jet Airways India Management Team

 Product Mix of Jet Airways India:

For year ended 2018 jet Airways give its result, Following is the detailed review of its result.
  Current Valuations for JET AIRWAYS

 The trailing twelve-month earnings per share (EPS) of the company stands at Rs -56.0,
a decline from the EPS of Rs 131.9 recorded last year.
 The (P/E) Ratio at the current price of Rs 281.8, stands at -4.2 times its trailing twelve
months earnings.
 The (P/BV) Ratio at current price levels stands at -1.0 times, while the price to sales
ratio stands at 0.3 times.
 The company's price to cash flow (P/CF) ratio stood at -30.8 times its end-of-year
operating cash flow earnings.

SWOT ANALYSIS

STRENGTH

1.Has created a good image among the Indian fliers

2. Trusted Airline by the Corporates
3. One of the biggest Indian airline companies with over 13,000 employees
4. Operations in over 76 Indian cities and over 400 daily flights

WEAKNESS
1. Poor communication system
2. Layoffs tarnished the image of Jet airways .

OPPOURTINIES

1. Strongly positioned in the International routes

2. Has presence in every segment
3. Increasing number of people opting to travel by airlines

THREATS

1. LCCs (LOW COST CARRIERS) eating up the market share

2. Rising Fuel Costs and Labour Costs
3. Unfavourable Govt policies and aviation regulations

Merger and Losses:

For instance, in 2005, when the now-defunct Kingfisher Airlines, led by an ambitious liquor
baron, barged its way into a still nascent Indian market, Goyal dialled back by lapping up
smaller rival Air Sahara. The deal was hanging fire for many months and was even called off
initially in 2006. But a persistent Goyal revived his attempt in 2007 and managed to bring the
Sahara India Pariwar-owned airline into Jet Airways’ fold, consolidating the market
leadership it enjoyed at the time.

Much later, in 2012, when Indian aviation was opened up to foreign direct investment, Goyal
again used his networking skills to rope in the deep-pocketed Etihad Airways as an investor.
After negotiating many roadblocks, the deal went through in 2013, and today, the Abu Dhabi-
based airline owns a 24% stake in Jet.

After two years of relative calm – small profits aided by low oil prices – the industry is in
turmoil again as crude prices have soared and the Indian rupee has depreciated against the
dollar.

SpiceJet, India’s fourth-largest airline by market share, posted a loss of Rs 38 crore for the
first quarter of the ongoing financial year. Market leader IndiGo hasn’t been spared either.
The budget carrier’s profit in the April-June period of this year nosedived 97% from a year
ago to a mere Rs 27.80 crore.
But Jet Airways seems to be facing the maximum heat. It posted enormous losses of Rs 1,036
crore and Rs 1,323 crore in the March and June quarters, respectively.

It is also struggling to pay its employees their salaries. In August, it delayed salary payouts to
pilots and engineers; in September, it reportedly failed to pay other employees as well.
“The situation is so bad that all of Jet’s aircraft deals and leases are being renegotiated. Banks
have clearly told Jet to first show how it is running its business. The flash sale that the airline
recently announced was done to just pay employees and other dues Stonewalled by banks,
and in need of cash, there are talks that Goyal may sell a part of his 51% stake in the
company.

What makes the cash crunch more acute is that Jet’s investor Etihad itself is now mired in
trouble.

For a while, the Abu Dhabi-based carrier had been buying minority stakes in airlines across
the globe to be in step with regional rivals Emirates and Qatar Airways. But since 2016, it has
been reviewing its investments as they accounted for nearly $2 billion in losses. Thus, talks
of its stake salein Jet could be a part of Etihad’s review of its own business strategy itself,
though Jet Airways has denied the claim.

“Etihad is a global player...It wouldn’t be surprising if they want to exit a micro market like
India at this point in time,” said Ashish Nainan, research analyst for the aviation sector at
CARE Ratings.

The West Asian airline’s exit may complicate matters for Jet, whose problems cannot be
explained by macroeconomic factors like the rupee’s depreciation or oil price rises alone.

Past baggage
Kingfisher Airlines’ entry into Indian aviation came after Jet had altered the market’s
dynamics. By 1993, it had successfully elbowed out Indian Airlines (merged with Air India
later in 2007) to become the domestic leader.

After Jet acquired Air Sahara for about Rs 1,450 crore in 2007, the latter was renamed JetLite
as a budget brand.

Aviation experts had then described the deal as a terrible idea as Jet was widely believed to
have paid a huge premium for a loss-making airline. “It’s very difficult for an airline
company to be profitable. At that point, the idea was that Air Sahara was struggling and Jet
was an established player. So, probably, the understanding was that Jet could leverage that
network and make something out of it

Besides the valuation, experts have also questioned the way JetLite was managed by Goyal.
The decision to run it as a separate entity was flawed, they say.
“When you have two different airlines, you don’t have either cost control or optimisation in
operations. They have completely different operating structures. This played havoc into the
operating structure of the airline (Jet Airways),” Mark Martin, CEO of the aviation
consultancy Martin Consultancy.

Ultimately, JetLite was merged with Jet’s low-frills brand JetKonnect in 2012, and the latter
dissolved. Goel’s plan to merge JetLite with Jet Airways was rejected by the aviation
ministry

Civil Aviation minister, Subramanian Swamy, member of parliament recommended

merging Jet Airways with Air India.
Jet Airway’s several slots have been temporarily for a period of three months given to other
airlines including Indigo, Spicejet and Vistara. According to Swamy, the closure of Jet
Airways is adverse effects for passengers and domestic along with international air traffic
with foreign airlines getting a higher share of the growing traffic which is not getting
absorbed by the Indian carriers. In 2012, the government had announced that foreign airlines
could have a stake of 49 per cent. After which Jet Airways and Etihad got into a strategic
alliance in 2013.
References:
1. https://www.goodreturns.in/company/jet-airways-india/product-mix.html
2. https://www.goodreturns.in/company/jet-airways-india/profile.html
3. https://www.goodreturns.in/company/jet-airways-india/history.html
4. https://www.thehindu.com/business/Industry/five-things-that-went-wrong-for-
jet-airways/article26863021.ece
5. https://www.livemint.com/companies/news/jet-airways-a-not-so-sweet-25-
year-journey-1555597605728.html
6. https://www.equitymaster.com/research-it/annual-results-analysis/JET/JET-
AIRWAYS-2017-18-Annual-Report-
Analysis/23/?utm_source=CompInfoPage&utm_medium=Website&utm_cam
paign=historical-quarterly-results