Jet Airways’ share price has embarked on a flight of its own. Despite being grounded for 2 years now, the share price has skyrocketed from 13 to 155.65 today. A bankrupt airline is becoming the world’s best performing airline stock giving over 800% returns! Is there any underlying good news as well? News has it that it is not just the stocks, Jet Airways itself will take just six odd months to get back to the skies again. What had happened to Jet Airways? Why do people have so much love for the grounded airline that its stocks are touching new highs?
The heydays of Jet Airways
In 1992, India Based Jet Airways was founded by Naresh Goyal. With 26 years of operations, Jet Airways has a legacy not many can boast about. From beginning its operations as an air taxi operator, the journey to being a premium international carrier is worthwhile. The airline once boasted a fleet strength of 119 aircraft and more than 16000 employees. Everything was going well for the airline, cash-flows, profit books, a successful IPO. It was the largest domestic airline in India in 2006. Then a couple of wrong decisions and the entry of other players in the aviation sector changed the course of history.
The downward spiral that grounded Jet Airways
Once India’s largest airline in 2004, Jet Airways started seeing a downward fall from 2007. Sketchy activities had begun to be noticed from 2001 itself when news of its linkage with the underworld came out. Then it was bought to light that the very beginning of Jet Airways was based on investment from shell companies heavily funded by the Indian underworld. Such controversies diverted the attention away from business towards legal proceedings.
When low-cost carriers started popping up, full-service airlines found it difficult to compete. The acquisition of Air Sahara which costed them no less than half a billion dollars was done without due diligence. In an attempt to gain more market share, India Based Jet Airways paid heftily for a loss-making airline. After this, Jet Airways could never become profitable again. Too much debt coupled with the 2008 financial crisis was enough to shatter the airline completely. Other airlines too felt the impact of the 2008 crisis but they were not overburdened with debt like Jet Airways. The value of the rupee fell to half and Jet Airways had to pay a huge amount of debt in dollar terms. Also, consumption and demand fell greatly at this time. The competition posed by low-cost airlines was the final blow in the ring.
After that, the code-sharing agreement with Kingfisher was of no help either. No-one predicted the damaging impact that low-cost carriers would bring on these airlines. Jet Airways even tried launching its own low-cost variant called Jet Lite. However, the same management running both full service and low-cost carrier models proved a recipe for disaster. All cash dried up and lenders refused to extend any further credit. Things came to a standstill in 2019. Jet Airways declared bankruptcy in 2019.
The revival of Jet
Jet Airways found itself knocking on the doors of the newly established Nationa Companies Law Tribunal (NCLT). It had to go restructuring under the Insolvency and Bankruptcy Code (IBC). Creditors came like vultures preying on a carcass. There was no sign of any buyer for a fairly long time.
Then a flashy teaser highlighting the strengths of Jet was released. Jet still had the third-largest civil aviation market in India. Its brand, its market position, its valuable landing slots, and codeshare agreements with various other airlines were a legacy.
A few months later, after the creditor claims were cut short, an expression of interest came by South America based Synergy Group Corp. Their bid however came with a condition. They wanted the lenders to waive off a significant portion of dues and convert debt into equity. The bid fell apart.
Their Bandra Kurla office was sold off for a sum of 68 million dollars, which was used to settle some dues. In the middle of a global pandemic, all hopes were beginning to die. It is then that Dubai based, Murari Lal Jalan and Florian Fritsch, a London based alternative asset manager, came to the airline rescue. The revival of the airline is being worked on. With muted travel demand, a market goliath with more than half the market share (Indigo), big players like TATAs trying to put a dent in the industry, it will be very interesting to watch the rise of Jet Airways again.