Hats off, NG

Jet's ousted chairman has successfully transferred the headache of reviving his airline to SBI and the government

Even as Naresh Goyal, the recently ousted chairman of Jet Airways, opens his bottle of wine at his home in London, he must look back on the last 25 years with great satisfaction.

Let me explain why. In 1994, Jet Airways was owned 60 per cent by Goyal, 20 per cent each was held by Gulf Air and Kuwait Airways. Government policy at the time permitted investment in domestic airlines by a foreign carrier and Goyal took full advantage of it.

In 1996, the Tata group wanted to set up a new domestic airline with Singapore Airlines (SIA) in a joint holding. To prevent competition, Goyal singlehandedly manipulated government policy to ensure that foreign airline investment in domestic carriers was forbidden. New Foreign Investment Promotion Board (FIPB) guidelines were issued that prevented “foreign airline” investment in a domestic carrier. As a result, the Tata group could not partner SIA. Goyal too had to ensure that Kuwait Airways and Gulf Air divested their stake in Jet Airways, a minor inconvenience in comparison to having a formidable new competitor. 

This ridiculous caveat — not permitting foreign airline investment even as cement, power or telecom companies could freely invest in a domestic airline — stayed in place for 16 years right up to September 2012, when the government issued new guidelines allowing automatic investment of up to 49 per cent by a foreign airline in a domestic carrier. It also permitted holding of up to 100 per cent by a non-resident Indian (read: Naresh Goyal).
 

The new guidelines conveniently came into place a bit late to help Kingfisher Airlines (KFA). KFA, which started flying in 2005, was on a downward spiral by 2010. By October 2012, Directorate General of Civil Aviation (DGCA) suspended KFA’s licence. 

However, in 2012, after the KFA demise, the government policy was changed to allow foreign airlines to invest up to 49 per cent through the automatic route in an existing Indian carrier, making Jet the first airline to take advantage of the new rules. In 2013, Etihad bought 24 per cent stake in Jet Airways for $379 million. Had the same new guidelines come into force just one or two years before it actually did, KFA may have survived or at least survived a bit longer. But timing is everything and in this case too timing was on NG’s side.

Interestingly, the new guidelines issued in late 2012 or early 2013 specified “existing Indian carrier” to prevent foreign airline investment coming into a new domestic airline at the time. Perhaps realising the absurdity of this, the government of the day and FIPB did give Vistara and Air Asia India permission — although they were not existing Indian carriers — to come in with SIA and Air Asia Berhard respectively, a matter that reached the courts and remains pending.

A second rule whose timing worked in Jet’s favour was the 5/20 introduced in 2004, just before Jet Airways went international (its first international flight was May 2005). This prevented new domestic airlines from going international unless they had been in operation for five years or had 20 aircraft in their fleet. The rule stayed till October 2016. 

Smaller policy diktats also tended to be on his side. In 1998, sensing an opportunity, Jet decided to introduce the ATR72-500 for certain regional routes. Miraculously, policy again favoured NG: Landing and parking charges for aircraft of less than 80 seats was waived at airports across the country and ATF was taxed at 4 per cent. On October 15, 1999, Jet introduced its first ATR flight on Delhi-Jaipur-Udaipur sector.

All through these years, the airline has operated with costs far higher than most rivals. It pays higher salaries than most rivals. It pays more than rivals for almost all services it outsources. It buys its aircraft at a higher price. It has higher sales and distribution costs than rivals and has steadily been paying commissions to JetAir Pvt Ltd, owned by NG. Naturally, it is broke.

Now with close to $4 billion of dues on its head, timing is on his side yet again. The most crucial general election is staring the present government and nobody wants Jet to go under right now. So, NG has left the entire mess in the hands of SBI Chairman Rajnish Kumar & Co. It is the ministry and Kumar who are promising to get more aircraft in the air to save the airline from bankruptcy and trying to find someone to buy it. As one rival airline CEO put it, “The villain of the piece now is Rajnish Kumar.”

Even as the writing is on the wall, Goyal can, if he so wishes, spend his days freely in London or Dubai where, by all accounts, he leads quite a comfortable life. He’s not a fugitive, has no dues on his head directly and can watch the show in peace from a safe distance. Mallya and others can learn a lesson or two from this gentleman. 

Hats off to NG!