Down and out? Jet Airways flies off to that great hangar in the sky

As this piece goes to press, Jet Airways is breathing its last and public sympathy, as it watches one of the best private airlines and brands of the last few decades go down, lies only with its employees (barring the top management), cabin crew, ground staff, pilots and engineers. 

The airline has some of the most loyal staff, the best engineers, the classiest cabin crews, and at least some senior commanders who display a loyalty even founder Naresh Goyal would find touching.

The top management is more culpable because many believe that they could have changed the trajectory of the airline or at the least raised some red flags with the concerned authorities before it was too late. 

They could have questioned the financial jugglery the airline has been accused of every now and then. In 2018 when the auditor of the airline  — BSR & Co, an affiliate of KPMG — refused to sign the accounts and even threatened to walk out, someone could have rung the alarm bells or, if nothing else, introspected with their colleagues about what was going wrong and figured out what to do.  

To be fair to the auditor, they did get into a tiff with their client in August 2018 when they refused to sign that Jet was going to be a “going concern” in the future, a fact that is staring everyone in the face today. But the role of the auditor comes into intense scrutiny when one looks closely at the financial jugglery the airline has been indulging in almost from the word go. 

Two financial transactions on the airline’s books have come under question over the years. One is a commission made yearly to Jet Air Private Ltd, owned in majority by Goyal and a few other unidentifiable names.

The other is the sales and distribution costs. 

On the first, it is not clear what service Jet Air Private was being paid for. Former Jet finance heads argue that it was larger sums in the earlier years and then, as the company’s fortunes took a turn for the worse, the amounts became smaller. For the year ended March 31, 2018, the commission was Rs 76 crore.

Also of concern were the high selling and distribution costs which typically amounted to 12-15 per cent of Jet’s yearly revenue while SpiceJet and IndiGo spend around 2-3 per cent. Why? What has Jet managed to achieve by shelling out this amount that others haven’t? This question has been raised time and again by auditors and analysts but Jet failed to curtail this expense.

Employees have also alleged that all revenue from cargo operations over the years has consistently gone to Jet Air Private while all overheads and expenses for cargo operations have been borne by Jet Airways. Again, can someone explain why?

Add to this the “industry practice” of aircraft purchase discounts not being brought into the books of the airline but pocketed by promoters – money that is either used overseas or laundered back into the country but never finds its way into the airline’s books. 

Apparently, this practice is well known and accepted, a bit like buy and lease back of planes. It may be worth finding out whether Jet Airways too adopted this industry practice.

Analysts and industry sources have been raising many pertinent questions. Shouldn’t the board members have raised some of these questions when the financial results were presented to them? Why is this amount being paid, to whom exactly and for what services? Couldn’t the lenders to the airline, who presumably have access to its minutest financial details, have asked about the who, what, why and when of any unexplained expenditure? If they were too busy, what about institutional investors or active shareholders? Was everyone collectively asleep?

Over the years, several employees have hinted (some alleged outright) at financial jugglery although they never had access to the books the way others did. Pilots have often claimed that some new software or new-fangled system was  acquired at an exorbitant cost and they didn’t understand the benefit of it. 

They also often questioned the sub-optimal use of aircraft and crew and even their own rosters. They have been unhappy about the route planning and rationalisation. 

This is not to say the management alone is to blame. It’s a combination of factors that has led to Jet’s demise, some within the airline’s control and some out of it. But even as we write the obituary of one of India’s leading private airlines, the role of the promoter, senior management, auditors, lenders and the board members cannot be ignored. 

PS: The airline’s last tagline is  “The Joy of Flying”.