Jet Airways’ survival may rest on founder Goyal leaving the cockpit

An Indian flight technician cleans the front windows of a Jet Airways Boeing aircraft. (AFP)
Updated 14 December 2018
0

Jet Airways’ survival may rest on founder Goyal leaving the cockpit

  • Abu Dhabi’s Etihad injected $600 million in 2013
  • Founder started as an assistant in a travel agency

NEW DELHI: Jet Airways’ 69-year-old founder Naresh Goyal, who started out as an assistant in a travel agency, wove together charm, persistence and consummate dealmaking to build India’s biggest full-service carrier.
Now, his penchant for control has emerged as a major obstacle as the indebted airline tries to negotiate a rescue deal, several people who have worked closely with him or known him over the years told Reuters on condition of anonymity.
“He was a visionary in his day but those days are behind us,” said a senior aircraft financier who has done deals with Goyal. “This is the moment of truth for Naresh Goyal.”
The rising dominance of low-cost carrier IndiGo in a price sensitive market as well as high oil prices, hefty fuel taxes and a weak rupee have left Jet strapped for cash and unable to pay employees and lessors on time.
The 25-year-old airline, which Goyal set up with his wife at a time when state-run Air India was the only real formidable opponent, has outstanding dues of about $400 million.
Jet, which has a mainly Boeing Co. fleet, has delayed pre-delivery payments to the Seattle-based aircraft maker as well as to Airbus SE, and is overdue on its repair and maintenance contracts, two sources aware of the matter said.
Although the Indian air travel market is the world’s fastest growing, at about 20 percent a year, it is also hobbled by cut-throat competition and chronically low fares. To stay afloat, Jet is cutting flights on some non-profitable routes and trying to raise cash by monetising assets.
It still retains a valuable strategic position as the biggest operator at Mumbai airport, where all of the good slots have been taken and a second airport is years away. It also has lucrative slots at major international airports and code share agreements with more than 20 airlines.
Jet has survived a near-death experience once before; in 2013, Abu Dhabi’s Etihad Airways injected $600 million of capital for a 24 percent stake in the airline, three London Heathrow slots and a majority share in Jet’s frequent flyer program. The infusion helped Jet pare down debt and fight growing domestic competition.
The airline is in talks with Etihad a second time and with Indian conglomerate Tata Sons for fresh funds or a stake sale, but sources have told Reuters that any rescue would require Goyal to step down, or take a less prominent role.
Goyal has rejected seeking funds from Tata if it meant him having to give up his position, two sources aware of the discussions said. Talks with Etihad are continuing.
Goyal did not directly respond to requests for comment but a Jet spokeswoman said the “conjectures being implied with regards to the organization’s ways of working” were misleading.
“The airline management is a fully empowered team ... all strategic, operational and tactical decisions are taken by the management under the advice of the company’s board of directors,” she said.
Will Horton, an independent aviation analyst based in Hong Kong, said it was time for Jet to evolve beyond “one leader or family.”
“A change at the top runs its course down. Freedom to implement a new management plan is critical for strategic and financial partners, existing and potentially new,” he said.
When Goyal launched Jet Airways in 1993, air travel in India was at a nascent stage. He kickstarted the sector’s growth and put the country on the map.
With 124 planes, Jet now flies to places like Hong Kong, Dubai, Paris and London, besides over 45 destinations in India.
Ceding control may not be easy for Goyal. He is Jet’s chairman and holds a 51 percent stake in the airline with his wife Anita still on the board.
“It is a very mom-and-pop kind of operation where nothing happens without the two of them,” said a former Jet employee, who describes the founder as a workaholic.
Goyal is always involved in key decisions and the airline’s CEOs often have little executive power and do not survive for long, according to two other current and former employees.
Jet has had seven CEOs in 10 years with its current chief Vinay Dube taking over in August 2017.
“The airline is his life and he built it from nothing, you have to give him respect for that,” said one of the former employees. “But ... the airline business can be unforgiving.”
In 2012, Kingfisher Airlines, founded by Indian businessman Vijay Mallya, went bust for want of cash, leaving its lessors and creditors with pending dues.
After Kingfisher went down, India ratified the Cape Town convention, an international treaty making it easier for foreign owners to repossess aircraft when airlines default on payments. That means Jet’s lessors could choose to reclaim planes in case of a default.
The airline could also be dragged to court by its creditors under India’s new insolvency laws.
Jet is committed to turning around its business and creating “a competitive cost structure that ensures a sustainable future for the airline and its stakeholders,” the spokeswoman said.
She did not comment on any specific deals but said the airline continues to be in active discussions with various investors to secure “sustainable financing.”
But Jet’s rescue options appear somewhat limited given its poor financial position — it posted losses in the last three quarters and its shares have fallen about 70 percent so far this year, erasing more than $900 million in market value.
Goyal, is knocking on all doors, including that of the government. Jet and Etihad executives also met lenders in India to discuss a rescue deal.
Senior Etihad adviser and former Jet CEO Cramer Ball was in Mumbai last week, just days ahead of a meeting of the Abu Dhabi carrier’s board on Dec. 7 where it was expected to discuss its investment in the Indian airline, two sources said. The outcome of the closed-door meeting remains unknown.
Etihad, in an email to Reuters, said it would not comment on speculation.
However, the Abu Dhabi carrier, which owns 24 percent of Jet, is ready to put in more money only if Goyal dilutes his stake, a source aware of the matter told Reuters.
Even so, Etihad’s stake will be capped at 49 percent due to foreign ownership rules in Indian airlines and if it goes past the 25 percent ownership threshold, it would need to adhere to capital markets regulations and make an open offer to shareholders to buy a further 26 percent stake.
If forced to do this, Etihad would risk breaching the foreign ownership restrictions and so it may have to seek a rare exemption from the markets regulator from making an open offer.
Talks with Tata are on the backburner for now but three people familiar with the conglomerate’s thinking said they may be found waiting in the wings if the Etihad deal falls through.
“There is an expectation that there will be a rescue and Goyal will find a way — he always does — but there is no clarity on how much control he will have after a deal is done,” said one of the people who works with him.


Crisis at India’s Jet worsens as it grounds planes, faces strike

The debt-laden carrier has delayed payments to banks, suppliers, pilots and lessors. (Reuters)
Updated 27 min 17 sec ago
0

Crisis at India’s Jet worsens as it grounds planes, faces strike

  • More than 20,000 people are employed in the company
  • The company had to stop more than 50% of their aircraft due to insufficient funds

MUMBAI: India's Jet Airways was fighting multiple crises Wednesday after grounding six planes, leaving it with only a third of its fleet flying, while pilots have threatened to walk out and a major shareholder is reportedly looking to offload its huge stake.

The problems at India's number-two carrier come as other airlines struggle to turn a profit despite the sector rapidly expanding in the country over recent years.

Jet, which employs more than 20,000 people, is gasping under debts of more than $1 billion and has now been forced to ground a total of 78 of its 119 aircraft after failing to pay lenders and aircraft lessors.

In a statement late Tuesday announcing its latest grounding, the firm it said it was "actively engaging" with lenders to secure fresh liquidity and wanted to "minimise disruption".

But with hundreds of customers left stranded, Jet's social media accounts have been flooded with often suddenly stranded passengers demanding information, new flight tickets and refunds.

"@jetairways We book our flights in advance so that we save on travel cost and you are sending cancellation (message) now?", read one irate tweet on Wednesday.

"I have sent a DM (direct message) regarding my ticket details. Please respond!", said Sachin Deshpande, according to his Twitter profile a design engineer.

Another, Ankit Maloo, wrote: "Received an email for all together cancellation of flight days before departure without any prior intimation or communication over phone!"

The firm is also facing pressure from its many pilots who have not been paid on time, with unions threatening they will walk off the job if salaries do not arrive soon.

"Pilots will stop flying jet planes from 1st April 2019 if the company does not disburse due salaries and take concrete decisions," a spokesperson for the National Aviator's Guild, a pilots union, told AFP.

India's aviation regulator on Tuesday warned Jet Airways to ensure that staffers facing stress are not forced to operate flights.

Meanwhile, Bloomberg reported that Etihad Airways of the United Arab Emirates has offered to sell its 24 percent stake in Jet to State Bank of India (SBI).

A collapse would deal a blow to Prime Minister Narendra Modi's pragmatic pro-business reputation ahead of elections starting on April 11.

India's passenger numbers have rocketed six-fold over the past decade with its middle-class taking advantage of better connectivity and cheaper flights.

The country's aviation sector is projected to become the world's third-largest by 2025.

But like other carries, Mumbai-based Jet has been badly hit by fluctuating global crude prices, a weak rupee and fierce competition from budget rivals.

Alarm bells for Jet first rang in August when it failed to report its quarterly earnings or pay its staff, including pilots, on time. It then later reported a loss of $85 million.

In February, it secured a $1.19 billion bailout from lenders including SBI to bridge a funding gap, but the crisis has since deepened.

"Jet Airways is rapidly reaching a point of no return and running out of assets to keep itself afloat," Devesh Agarwal, editor of the Bangalore Aviation website, told AFP.

"The only solution is equity expansion by diluting its stakes but Jet is just trying to cut losses and running out of options," Agarwal said.

Shares in Jet Airways were down more than five percent on Wednesday.