Jet Airways has consistently been one of India’s top three airlines in the past decade. Jet Airways was founded by ticketing agent-turned-entrepreneur Naresh Goyal after India ended a state monopoly on the aviation industry in the early 1990s.
Timeline of Jet crisis 2008 financial crisis It is not the first time that Jet Airways is in financial trouble. During the 2008 Financial crisis, the Indian aviation sector also hit badly. Due to the drop in the number of passengers, airlines were forced to either drop the prices or to raise them to meet the cost of rising fuel prices. Jet Airways also hit by the crisis. They faced with 2 challenges
- First, they had acquired Air Sahara, increasing their cost.
- Second, Low-cost carriers like IndiGo started dominating the industry.
So, to reduce their cost, Jet Airways fired, 1900 employees that led to the formation of Pilot union called the National Aviators Guild. Union went on to strike, Subsequently, Jet Airways cancelled numerous flights and left thousands of passengers stranded. Jet Airways then reached an agreement with pilots and spend the next few profitable years by:
- optimized routes
- Reduced operational costs
- Reducing the flight weight, by reducing the number of amenities carried on board, to carry more passengers.
- Launching one more low-cost subsidiary airline Jet Konnect (other than Air Sahara/Jet Lite).
In 2012, Jet Airways merged both low-cost subsidiaries. In 2012, also the government allowed foreign investment in airlines, it resulted in Etihad buying 24% of Jet Airway’s shares. Present crisis The first sign of present crisis appeared in May 2018, when Jet Airways posts an unexpected loss of Rs 1,036 crore in the fourth quarter of the FY18. By August of 2018, it became apparent that Jet Airways was in a serious financial mess. A combination of external and internal factors saw the airline default on the payment of salaries to its staff. Its losses in the current fiscal have been to the tune of Rs 3,200 crore. In October talks to prospective investors failed, as they wanted Naresh Goyal (founder) to step down and Rating agency ICRA downgrades the company's long-term loans. In December, many flights cancelled and Jet Airways defaults on debt repayments for the first time. On February 14, Jet board had approved an SBI-led-resolution plan. Under the plan, a group of lenders led by State Bank of India has proposed taking a 50.1 per cent stake for Re 1 through the issuance of 114 million new shares. On March 25 - Founder Naresh Goyal steps down as chairman, wife Anita Goyal resigns from the board. Most recently in the absence and delay in funding, it has grounded more than two-thirds of the 119 aircraft it had in its fleet. Other Airlines that faced a crisis in the past At least a dozen airlines have closed down in the last two decades. Big names such as Damania, Sahara, Paramount, Air Deccan preceded Kingfisher and Jet Airways. In each of them, a large amount of public money was involved to keep them afloat before they folded up. Besides, Air India, the national carrier, is surviving on the taxpayer's money. The government has so far given Rs 60,000 crore to keep it flying after sell-off bids failed. Factors that led to the crisis rising cost of aviation turbine fuel (ATF)
- The rising cost of aviation turbine fuel (ATF) took a heavy toll on many airlines, especially Jet Airways as it flies on international routes as well. Higher crude oil prices together with central and state taxes on ATF make it a costly deal
- Jet fuel is around 50% of the total operational cost an airline incurs.
- Due to high taxes, it costs 30-35% higher in India compared to Malaysia, Thailand, and Indonesia
Low-cost model Low-cost model is one of the biggest causes of unmanageable costs of airlines. Jet Airways also jumped into this price war and started offering tickets at very low prices that became unsustainable in the long run and incurred heavy losses on them.
Shortage of skills although India sits on a demographic goldmine, the industry has been up against a severe shortage of skilled workforce and accredited institutes to train the required engineers, technicians and other professionals to meet its growing requirement.
Imbalance of manpower While some of the Airlines such as Air India has surplus manpower and this is one of the major causes for its financial crisis. Some of the airlines such as Indigo as facing the shortage of manpower.
Rupee depreciation The rupee’s depreciation is hitting carriers hard as it did a few years ago. About 25-30% of their costs, excluding fuel, are dollar-denominated—from aircraft lease rents and maintenance costs to ground handling and parking charges abroad.
Congestion at major airports: Mumbai airport which is a single runway airport handles over 900 flights every day on an average. That is almost 38-40 flights every hour. Congestion also leads to delay in operations and fall in operating efficiency of both airlines and airports.
Maintenance Repair and Overhaul (MRO) Maintenance Repair and Overhaul (MRO) is also one of the major problem areas for civil aviation in India. MRO industry presence is not sufficient to deal with the demand of industry and outsourcing has been tough due to high duties as well.
Steps were taken by the government National Civil Aviation Policy (NCAP), 2016 It is the first policy launched by the government exclusively for civil aviation. Following are its salient features: Regional connectivity scheme: It seeks to connect the unconnected areas with the help of Viability Gap Funding (VGF). It provides for low price airfare of about Rs2500 per passenger for a one-hour flight. Scrapping 5/20 rule: According to the rule, only local airlines having a fleet of minimum 20 aircraft with at least five years of operational experience are allowed to run overseas flights.
ROUTE DISPERSAL GUIDELINES (RDG): Under the guidelines, the various air routes in India were divided into three categories according to the traffic on these routes. The Category I (Cat I) routes will include distance more than 700 kilometres. The remaining types of routes (Cat I and Cat II) will comprise of tier II or tier III towns.
MAINTENANCE, REPAIR AND OVERHAUL (MRO): Incentives such as faster sanction of visas to MRO experts, temporary landing permits to foreign pilots working for MRO and removal of airport royalty charges for five years period are aimed at making India an MRO hub of Asia. Government has allowed as per the present FDI policy, foreign investment up to 49% in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. In November 2018, the Government of India approved a proposal to manage six AAI airports under public-private partnership (PPP).