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Business Management IA

Company: Jet Airways India Limited

Research Question:

To what extent selling off promoter's stakes in Jet Airways helped Jet Airways India limited

overcoming its Financial Crisis in India?

Session: May 2020

Word Count: 1495

 Page 2 of 19

TABLE OF CONTENT

Introduction 03-04

SWOT Analysis for JAIL 04-05

Stock Market Data 06-07

Cash-Flow Forecast 07-08

Financial Ratio 08-09

Force Field 10-10

Conclusion 11-11

Bibliography 12-12

Apendix 13-18
 Page 3 of 19
Introduction

Jet Airways India Limited (JAIL) is an Indian private airline company providing its services in

56 distinct routes. Starting its services in 1993 the company completed its 26 years this year. Over

the years the company has expanded to a fleet of 119 aircrafts and ranked second for it services with

a market share of 12.7% in India. The major stakeholder of the company are Naresh Goyal and

Emirates Airways and other international airlines and is renowned for its exemplary services and its

certified quality.

The company started facing a lot of competition in the mid 2000s and hence dropping its charges

below the operating cost and providing certain amenities for free to retain the market share and at

the same time, increase in provincial taxes of jet fuel up to 30% added to its expenses. Its premium

paid services like food and entertainment had a low demand amongst the Indian fliers which

accounts for more than 50% of the airliners profits and has resulted in the loss of over INR 72

billion. The piling debts were left unpaid and due to this on December 31st 2018, the company

delayed to pay the salary of the employee. The company need around INR 85 billion to get back on

its feet and therefore has decided to sell its stakes to investors like Etihad airlines, Tata group and

Naresh Goyal himself proposed to give as much as INR 7 billion to the company and hence the

Research question will focus on "To what extent selling off promoter's stakes in Jet Airways

helped Jet Airways India limited overcoming its Financial Crisis in India?"
 Page 4 of 19

Primary Jet Airways accepts Etihad https://www.hindustantimes.com/business-news/jet-

Article bailout plan, chairman Naresh airways-accepts...naresh-goyal-may-resign-report/
Goyal may resign: Report story-XVSihtAy8bA3i5yBdo6oZJ.html

Banks ask Naresh Goyal, Etihad https://www.business-standard.com/article/

to contribute to Jet Airways companies/banks-ask-naresh-goyal-etihad-to-
bailout contribute-to-jet-airways-
Supporting
bailout-119030100031_1.html
Article
SBI calls lenders’ meeting with https://www.hindustantimes.com/business-news/sbi-
Jet Airways chairman Naresh Goy calls-lenders-...esh-goyal-etihad-ceo-douglas/
Etihad CEO Douglas story-9v64766bJVOdHHCNM9aNCK.html

Why debt-hit Jet Airways is https://www.hindustantimes.com/business-news/

selling majority stake for Re 1 why-debt-hit-jet-air...selling-majority-state-for-re-1/
story-vnASH1qMGoJVV6dxvUsocI.html

Articles with the title and links( also mentioned in the appendix)

SWOT analysis of Jet Airways India limited

SWOT ANALYSIS

The company has a strong base in India with a good reputation amongst the Indian fliers and its

distinguished services helped it get a wider reach to the international alliances. However, operating
 Page 5 of 19
in negative margins proved unfavorable for the company and kept it away from paying the piles of

debt caused by the low profits and the crash of two Boeing 737 max 8 aircrafts, followed by a ban

on the aircraft led to more than 5 aircraft being grounded and further increasing its costs.1 These

factors proved to be both a threat and a weakness for the company in its financial crisis. Keeping

these factors aside aviation industry is at a rise that it has never seen before with government

promoting aviation activities and more customers preferring to fly, airliners are experiencing high

growth opportunities. These opportunities also increased the demand for the company’s services

and an increase in the use of internet services complemented its online club membership which

helps it distinguish its promotion from other existing airliners and all these opportunities attract

more investors to the aviation industry. In its financial crisis jet Airways with its good reputation,

successfully gained investments from stakes like banks and other airlines in the alliance, who have

not left hope in the company. This was followed by a loan of over 293 million INR provided by

PNB (an India based private bank)2, amongst banks and airlines there are other potential investors

willing to buy the stocks of JAIL in the hope of high returns and in order to gain share capital

N.Goyal sold his share in JAIL. The change in this share can be analyzed using the stock market

data.

1 PTI. Jet Airways not operating any Boeing 737 MAX plane
2 Reuters. Jet Airways secures $293 million loan from PNB, shares up 4.8%.
 Page 6 of 19
STOCK MARKET DATA

The above graphs shows the share price for Jet Airways in from September 2018 to August 2019. The
points marked are 1 sept 2019 when the decision to sell the share were take and the other point shows the
fall in the prices

The peak for JAIL between the period shown in the above graph is INR 346.50 and a lead of

7.98%3 and the analysis of both the graphs suggests that after Naresh Goyal took the decision of

selling his 22% stocks in Jet airways on 1st February 2019 the stock prices changed drastically4.

3 Jet Airways (India) Ltd. Share Price. 2019.

4 As mentioned in Appendix5
 Page 7 of 19
After he sold his stocks there was a drop of INR 5.24 5, which was followed by fluctuation and

finally rising above INR 255.15 which allowed new investors to invest in the firm and helped it

gain share capital. However, the question arises, why will Naresh Goyal take the decision of selling

a major stake in JAIL? The reason for this sale was a financial crisis in JAIL that occurred due to a

cash crunch, this problem can be analyzed using the cash flow statement of the past 5FY (fiscal

years).

CASH FLOW

Net Cash flow

700

525

350

175

-175

-350

-525

-700
march 14 march 15 march 16 march 17 march 18

Net cash flow for Jet Airways from March 2014 to March 2018

5 from INR 255.15 to INR 214.10 Jet Airways (India) Ltd. Share Price. 2019.
 Page 8 of 19
The company faced a lack of cash caused by the net cash flow remaining in or close to the

negative margins in the time period resulting from high cash outflow and low inflow caused by high

financing and fewer returns from the investment activities carried by the company6. This situation is

often referred to as over-trading and in JAIL it targeted investing more in order to achieve faster

expansion to be competitive in the market. It was a part of extension strategy leading to

overspending causing a poor cash flow in JAIL. However, in long run conditions would have

improved due to returns received from the investment activities but the condition worsened and it

seeked alternative sources of finance to meet its operation cost leading to an increase in debt for the

company and they need to find out a way of paying it. Now, JAIL needs to find a way to pay it

prolonged debt and can be analyzed using the financial ratio.

FINANCIAL RATIOS

There are multiple ways in which a company can pay its prolonged debts, one of them is sale of

its assets.

Financial march 14 march 15 march 16 march 17 march 18

Ratio(%)

Net profit -21.69 -10 5.45 6.60 -2.59

margin

Current Ratio 33 38 42 47 56

Quick Ratio 38 47 47 45 54

Gearing Ratio 112.62 82.84 94.11 109.57 73.11

There was a decrease in NPM by 8% from 2017 to 2018 which shows the profitability of the

firm and being in negative makes it worse as it indicated that the firm is not making any profits but

6 As mentioned in Appendix 5 page 18

 Page 9 of 19
Net profit margin Current Ratio Quick Ratio Gearing Ratio

120

90

60

30

-30
march 14 march 15 march 16 march 17 march 18

Financial ratios for Jet Airways from march 2014 to march 2018

rather operating at losses7 . On analyzing the Liquidity ratios, there was an increase in the current

ratio and quick ratio, indicating that it was able to use its liquid assets to cover its short debt by

selling its assets and being highly geared suggested that it was highly dependent on the external

sources of finance like loan capital, share capital etc and incurred higher costs due to debt financing

which can limit its net profits, leading to high loan repayment and a downturn in the economy of the

firm. When a potential investor like Etihad airlines and others access these ratio percentages they

see a high level of risk as they fear that the amount paid to the shareholder will decrease as payment

to the financiers will be prioritized, hence limited the investments from these investors which

questions the decision of Naresh Goyal of selling his stocks. All this factor support or oppose the

decision which can be analyzed using force-field analysis.

FORCE FIELD

7 Appendix 6
 Page 10 of 19
Cash crunch was the major reason for the sales of stake which is a major driving force for its

decision and along with low profit and piles of debt generated the urgent need for capital which

Force field analysis for Jet Airways decision to sell the stake of promoters

makes them a major driving force. Further, JAIL was not able to pay its employee’s salaries for the

past few months which decrease the morale of its workforce, harming the daily operations of the

company. In contrast to it, high liquidity helped in paying the short term liabilities and it started

receiving help from major stakes and alliances which compelled in giving the decision a second

thought. Also, the company is better off as government aid is protecting the company from

bankruptcy which prevent the risk of unemployment of over 130,000 workers working in the

company.
 Page 11 of 19
Conclusion

Jet Airways' financial crisis may not have occurred if JAIL would have planned its extension

strategy and after reaching its saturation, entered the declining stage as it failed to apply an

extension strategy on time, causing more finances being used in the investment for applying the

strategy and hence incurring more costs.

6 thinking hats for Jet Airways decision to sell the stake of promoters
 Page 12 of 19

The analysis of the JAIL’s situation tells us that it is facing a financial crisis due to overspending,

gaining low profits and having large amount of debts. Also, the firms ratio tells that it was highly

geared. The founder Naresh Goyal felt that it will be right to sell his stake in JAIL to get out this

crisis. Other stakeholder saw this decision as an opportunity to get a major part in the stake of the

company even so some stakeholders like employees may feel a sense of insecurity by this decision.

Further, customer may loose trust in the company after the sales and it can also reduce the trust of

some of the investors. In contrast to it, the decision can help in gaining the must needed finances it

needs to step back on its feet. Nevertheless, It is also a creative solution as it attracted bigger names

like TATA and Emirates to get a major part of-stake in the firm and increased the chance of getting

the potential investment and a change in the company.On analyzing a different point of view it was

favorable to take this decision in the companies favor as in long run they would have received the

returns from the money they spend on the investment activities and would have overcome its

financial crisis in India. Hence, answering the research question "To what extent selling off

promoter's stakes in Jet Airways helped Jet Airways India limited overcoming its Financial

Crisis in India?".

Word count: 1495

 Page 13 of 19

Bibliography

balachandran, Manu. "Jet Airways: How Naresh Goyal lost the plot ." Forbes (n.d.)

Rapier, Graham. "India's second-largest airline is shuEng down aFer running out of money."

BUSINESS INSIDER (n.d.).

Dempsey, Brandon. January 2018. February 2018. <hPps://www.forbes.com/sites/theyec/

2018/01/11/business-life-cycle-spectrum-where-are-you/#64183218ef5e>.

Jet Airways (India) Ltd. Share Price. 2019. March 2019. <hPps://economicYmes.indiaYmes.com/

jet-airways-india-ltd/cashflow/companyid-4374.cms>.

n.d. February 2019. <hPps://www.moneycontrol.com/stock-charts/jetairways/charts/JA01>.

Mulder. 2011. February 2019. <hPps://www.toolshero.com/decision-making/six-thinking-hats-de-

bono>.

PTI. Jet Airways not operaAng any Boeing 737 MAX plane . 11 March 2019. 15 March 2019.

<hPps://economicYmes.indiaYmes.com/industry/transportaYon/airlines-/-aviaYon/jet-airways-

not-operaYng-any-boeing-737-max-plane/arYcleshow/68362369.cms?from=mdr>.

Reuters. Jet Airways secures $293 million loan from PNB, shares up 4.8%. 11 March 2019. 20 July

2019. <hPps://www.hindustanYmes.com/business-news/jet-airways-secur...-loan-from-pnb-

shares-up-4-8/story-Vb2od5qH9KfcmACWGd953O.html>.
 Page 14 of 19

APPENDIX 1-Primary Article(Jet Airways accepts Etihad bailout plan,

chairman Naresh Goyal may resign: Report )

Jet Airways accepts Etihad bailout plan, chairman Naresh Goyal may resign: Report | business news | Hindustan Times 04/02/19, 11)37 AM

98.26%^
Claims Paid Percentage
#BharoseKaNumber Get 1Cr.
@ ₹563/month

UIN: 104N092V03 | *Disclaimer. Non-Participating, Non-Linked Term Insurance Plan | ARN: 150119/GDN-OTP-2/ ^Source: IRDAI Annual Report 2017-18

Friday, Feb 01, 2019 New Delhi 11 °C ∠

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Jet Airways accepts Etihad bailout plan, chairman Naresh Goyal

photos (/photos/) brandstudio-live (http://brandleadership.hindustantimes.com/ht_live.html) tech (/tech/)

may resign: Report

Both Jet Airways and Etihad Airways are set to sign a memorandum of understanding (MoU) within days, which would result in Jet Airways’ founder and chairman
Naresh Goyal reducing his stake to 22 percent from 51 percent and stepping down from the board, the report said, citing sources.
BUSINESS Updated: Feb 01, 2019 12:46 IST

Reuters
Reuters

Jet Airways founder chairman Naresh Goyal is expected to step down from the board of directors(REUTERS)

https://www.hindustantimes.com/business-news/jet-airways-accepts…naresh-goyal-may-resign-report/story-XVSihtAy8bA3i5yBdo6oZJ.html Page 1 of 4
 Page 15 of 19

APPENDIX 2-Supporting Article (Banks ask Naresh Goyal, Etihad to

contribute to Jet Airways bailout )

Banks ask Naresh Goyal, Etihad to contribute to Jet Airways bailout | Business Standard News 01/03/19, 9(07 AM

BS APPS BS PRODUCTS BS E-PAPER BS LEARNING SIGN IN SUBSCRIBE

JUST IN Bharti Airtel board approves raising Rs 32,000-crore to fire up biz Search News,Stock Quotes or Companies

You are here: Home » Companies » News

Banks ask Naresh Goyal, Etihad Companies Overview GO

to contribute to Jet Airways

bailout
Goyal agrees to step down from the board, cut his stake to 22%
HOME MARKETS COMPANIES OPINION TECHNOLOGY SPECIALS PF PORTFOLIO ELECTIONS SPORTS INTERIM BUDGET
Surajeet Das Gupta & Abhijit Lele | New Delhi/ Mumbai
Last Updated at March 1, 2019 01:02 IST

LATEST NEWS

IN THIS SECTION ALL

Real estate players see

opportunity in the draft e-
commerce policy

Banks ask Naresh Goyal,

Etihad to contribute to Jet
Airways bailout

Besides volume ramp-

up, profitability to remain
healthy for GAIL, IGL

Strong product mix,

new launches to keep
Sanofi India margins
elevated
Advertisement

The consortium of lenders in Jet Airways has made it

More >
clear to the promoter and chairman of the cash-
strapped airline, Naresh Goyal, and partner Etihad
Airways that there cannot be only a bank-driven
bailout of the Indian carrier and the two will have to

https://www.business-standard.com/article/companies/banks-ask-nares…al-etihad-to-contribute-to-jet-airways-bailout-119030100031_1.html Page 1 of 5
 Page 16 of 19

APPENDIX 3-Supporting Article (SBI calls lenders’ meeting with Jet

Airways chairman Naresh Goy Etihad CEO Douglas )

SBI calls lendersʼ meeting with Jet Airways chairman Naresh Goyal, Etihad CEO Douglas | business news | Hindustan Times 01/03/19, 8)47 AM

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SBI calls lenders’ meeting with Jet Airways chairman Naresh Goyal,
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Etihad CEO Douglas

The meeting, to be held at SBI’s office in Mumbai, assumes significance amid differences persisting between Goyal, the lenders and Etihad, which has 24 per cent
stake in Jet Airways.
BUSINESS Updated: Feb 26, 2019 20:27 IST

Press Trust of India

New Delhi

Naresh Goyal, Chairman of Jet Airways.(REUTERS FILE PHOTO)

State Bank of India (SBI) has called an urgent meeting of lenders with Jet Airways Chairman Naresh Goyal and the domestic
carrier’s significant shareholder Etihad Airways’ CEO Tony Douglas on Wednesday to discuss a way forward for the debt-laden
airline, sources said.

The meeting, to be held at SBI’s office in Mumbai, assumes significance amid differences persisting between Goyal, the lenders and
Etihad, which has 24 per cent stake in Jet Airways.

https://www.hindustantimes.com/business-news/sbi-calls-lenders-…esh-goyal-etihad-ceo-douglas/story-9v64766bJVOdHHCNM9aNCK.html Page 1 of 4
 Page 17 of 19

APPENDIX 4-Supporting Article (Why debt-hit Jet Airways is selling

majority stake for Re 1)

Why debt-hit Jet Airways is selling majority stake for Re 1 | business news | Hindustan Times 21/02/19, 1(41 PM

Wednesday, Feb 20, 2019 New Delhi °C ∠

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Why debt-hit Jet Airways is selling majority stake for Re 1

videos (/videos/) photos (/photos/) brandstudio-live (http://brandleadership.hindustantimes.com/ht_live.html) tech (/tech/)

A group of lenders led by State Bank of India has proposed taking a 50.1 percent stake for 1 rupee through the issuance of 114 million new shares, a maneuver that’s
allowed under a framework outlined by the Reserve Bank of India last year.

BUSINESS Updated: Feb 20, 2019 15:32 IST

Anurag Kotoky
Bloomberg

It’s part of a bailout plan by its state-owned lenders that will give the airline time to arrange fresh equity.

Debt-ravaged Jet Airways India Ltd, the country’s biggest so-called full-service airline, is selling a majority stake for 1 rupee. It’s
part of a bailout plan by its state-owned lenders that will give the airline time to arrange fresh equity. The complicated
arrangement is on track to be voted through on February 21, in what would represent the rescue of one of the country’s most visible
companies at a sensitive time, with India’s general election just weeks away.

What is Jet Airways?

It’s consistently been one of India’s top three airlines in the past decade. Jet Airways (https://www.hindustantimes.com/business-
news/jet-airways-likely-to-get-over-rs-3-000-crore-funds/story-u9stdoK23FjDGKKzRbim8H.html) was founded by ticketing agent-
turned-entrepreneur Naresh Goyal after India ended a state monopoly on aviation in the early 1990s. It’s now 24 percent owned by

https://www.hindustantimes.com/business-news/why-debt-hit-jet-air…selling-majority-state-for-re-1/story-vnASH1qMGoJVV6dxvUsocI.html Page 1 of 4
 Page 18 of 19

APPENDIX 5 (Jet Airways Cash Flow)

 Page 19 of 19

APPENDIX 6 (Jet Airways Balance Sheet )