India’s Jet Airways grounds three quarters of fleet as it awaits bailout funds

Jet Airways’s operational fleet stood at 28 airplanes as of Wednesday versus 119 planes last year. (Reuters)
Updated 03 April 2019
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India’s Jet Airways grounds three quarters of fleet as it awaits bailout funds

  • Jet Airways struck a deal earlier this year with State Bank of India and other lenders to escape bankruptcy
  • Jet’s operational fleet stood at 28 airplanes as of Wednesday, versus 119 planes last year

NEW DELHI: India’s Jet Airways has been forced to ground more than three quarters of its fleet after failing to pay lessors, as the debt-laden carrier struggles to secure bailout funds promised by state-run banks.
Jet struck a deal earlier this year to escape bankruptcy under which State Bank of India (SBI) and other lenders were to pump in $218 million and temporarily own a majority stake in the airline. But it has not got any of the funds so far and has not paid its employees for March, said a person with direct knowledge of the matter.
Once India’s leading full-service airline, Jet was founded 25 years ago by Naresh Goyal at a time when state-run carrier Air India was the only real formidable opponent. In recent years, however, Jet has struggled to compete with low-cost carriers such as IndiGo and SpiceJet that now dominate Indian skies.
Jet’s operational fleet stood at 28 airplanes as of Wednesday, a company spokesman told Reuters, versus 119 planes last year.
At least 69 aircraft have been grounded due to money owed to lessors, showed stock exchange filings by Jet, while the remainder are out of service for maintenance.
Some lessors with direct knowledge of the matter said Jet had told them it would pay for one month’s rental and maintenance by the end of last week, but no payment had been received.
“We already have five to six months of delinquencies and we were promised just one month and even that hasn’t been paid. This is very disappointing,” said one of the people, who declined to be identified due to the sensitivity of the matter.
Jet did not respond to specific queries on lessor and salary payments but said in a statement that the airline has informed the aviation regulator it is operating a curtailed schedule.
The Jet rescue plan itself has come under a cloud. It was based on a directive issued by the country’s central bank last year but India’s top court quashed that directive on Tuesday.
SBI and Jet did not respond to requests for comment on the court ruling. But some such as Madhukar Ladha, an equity analyst at Mumbai-based firm HDFC Securities, did not see Jet’s rescue package being in peril as the deal was already agreed.
After the bailout was announced, Jet told India’s aviation regulator it would not ground any more planes and would fly 40 more aircraft by the end of April, taking its operational fleet to 75 planes.
But late on Tuesday, Jet said it grounded 15 planes.
With a smaller operating fleet, Jet has given pilots and cabin crew the option of flexible working days and taking extended leave with or without pay, showed a note to staff reviewed by Reuters.
Even as the aircraft groundings are currently impacting Jet’s operations, the airline needs to rationalize its fleet and focus on profitable routes, said HDFC Securities’ Ladha.
“The situation remains precarious,” he said.


Can green investment help relaunch Germany’s economy?

Updated 11 min 13 sec ago

Can green investment help relaunch Germany’s economy?

  • The German government has so far shown little willingness to change its stance

FRANKFURT, Germany: A recession looms for Germany and the European Central Bank is pleading for governments to spend more to revitalize economic growth. Yet despite having the luxury of borrowing money for less than nothing, the German government is keeping a tight rein on its finances.
A debate over Germany’s devotion to budget austerity is intensifying as the outlook for the economy dims and public pressure grows to address big issues such as global warming. On Friday, the government will unveil a raft of measures that could include billions in incentives and spending to make the economy more environmentally-friendly.
“The call for fiscal stimulus has never been louder,” said Carsten Brzeski, chief economist for the bank ING Germany. “And this week will show whether the eurozone country with the deepest pockets finally plans to empty them.”
The slowdown in growth across Europe, blamed largely on the US-China trade conflict and uncertainty about Brexit, is putting a sharp focus on Germany’s devotion to the so-called “Schwarze Null,” or “black zero,” which refers to the policy of balancing the budget — the zero — with at least a small surplus to keep it in the black.
The debate over government spending policy affects the entire 19-country eurozone, since more government outlays by Germany and other fiscally sound countries such as the Netherlands could help support growth by building new infrastructure, such as roads, rail lines or high-speed Internet, or by gathering less in taxes.
The German government has so far shown little willingness to change its stance. It has ignored repeated pleas from the head of the European Central Bank, Mario Draghi, who said last week it was “high time” for government spending to take over as the main tool of economic policy. The central bank announced interest rate cuts and bond purchases in an attempt to ward off a downturn.
The government argues it’s important to reduce debt while the economy is growing and not to burden future generations. German Finance Minister Olaf Scholz submitted a balanced draft budget of 360 billion euros ($400 billion) for 2020 last week and Chancellor Angela Merkel said in a speech before the German Taxpayers’ Federation that the government was sticking to its balanced budget, “not as a goal in itself, as we are often accused of doing, but because clear economic reasons and fairness aspects argue for that.”
Merkel noted that Germany’s total debt would fall below 60% of gross domestic product — the limit for countries that use the euro — for the first time since 2002. The German constitution itself sharply limits deficits to 0.35% of GDP except in a crisis, yet the government’s surpluses go well beyond that requirement.
While the German government may not be giving up on balanced budgets, there are signs it is at least easing up the zeal with which it amasses surpluses.
Last year’s surplus of 1.9% of GDP has fallen to 1.4% this year and is expected to hit 0.9% next year — meaning that the government is already providing some fiscal stimulus. Germany’s economy shrank 0.1% in the second quarter and underlying figures are pointing to another quarter of contraction, which would put the country in a technical recession.
It is striking that the government refuses any new borrowing at a time when it can do so at negative interest rates — meaning it would get paid back more than it borrows. German 10-year bonds currently yield minus 0.48%, and the government was able to sell a 30-year bond at a negative interest rate in August.
Marcel Fratscher, the head of the German Institute for Economic Research in Berlin, has called the balanced budget a “false fetish.” His institute has argued that Germany needs to invest in long-term modernization projects such as extending digital services in rural areas.
The president of the Federation of German Industries, Dieter Kempf, said in an interview with Der Spiegel that “it’s worth considering sensible use of the space,” allowed by the constitution to fund more investment.
The calls to spend are not coming only from those concerned about the economy, but also climate activists who say more needs to be done to shift the world economy from carbon-intensive industries and consumption. Public pressure has only grown after the country witnessed its hottest summer on record and the opposition Greens party made big gains in elections to the European Parliament and in domestic polls.
On Friday, the government is expected to unveil a package of incentives aimed at reducing carbon dioxide emissions from homes and autos so that Germany can meet its goals under the 2015 Paris climate accord. Possible measures include incentives to replace old heating systems or to purchase battery-powered autos. A report in Die Welt newspaper said the government was considering measures totaling some 40 billion euros ($44 billion) through 2023.
Brzeski said such a program “would not be enough to stop the slide of the economy toward recessionary territory, but it could be an important cornerstone in Germany’s recovery and its quest for a new economic model.”
Spending on that level would only be “a slow-motion stimulus” since it will take time to roll out, said Holger Schmieding, chief economist at Berenberg bank.
“It will add up over time and support domestic demand,” he said. “However, the German stimulus will not be a European, let alone a global, game changer.”