Tata bye bye

Why the Tata group buying Jet would have been the best outcome for all

As the weeks went by, it became increasingly evident that the Tata group is unlikely to be the new owner of Jet Airways. Matters were still not sealed but whoever I have spoken to said that the short fling was over. The Tata group’s insistence on keeping chairman and promoter Naresh Goyal’s stake to below 10 per cent and offering only one board seat (for his son and not him) was the deal breaker.

When I first read that the Tatas were exploring buying a stake in Jet Airways provided they could nudge Goyal out of it, I thought they had some kind of death wish. As it is, Vistara is making impressive losses and the less said about AirAsia India the better. On top of that, buy the loss-making Jet? What were the Tatas thinking?

But then, the more I thought about it and discussed it with industry sources and a few other CEOs, I realised the Tata interest made quite a bit of sense. With the Navi Mumbai airport still looking like a pipe dream, any airline hoping to grow its international footprint has very few choices. Getting a landing, parking slot or gate space out of Mumbai and even Delhi is near impossible in today’s scenario. 

Jet Airways may be loss-making but it had something that most airlines today cannot buy for love or money: Slots and gate space out of the Mumbai's international airport. In Mumbai, Jet has 140 slot pairs and currently operates 34 international flights a day on an average out of Mumbai and 24 out of Delhi. The rest of the slot pairs are used for domestic routes. 

In India, unlike many other countries, flying slots are allotted to airlines and are not saleable or tradable so there isn’t a definite value that can be ascribed to them. But as one industry source put it: In today’s constrained airports, slots at Delhi and Mumbai are priceless. So for Vistara to grow as envisaged, it can either look at acquiring what Air India can offer or what Jet can. There is no third airline in India with any significant international presence. The Air India sale has come a cropper. So if Vistara is to grow in the international arena, what are its options? I’m sure the management has some answers but they don’t come to my mind immediately. 

Moreover, with Vistara now adding Boeing aircraft (B787s) to its fleet for its international foray, there would have been some synergies with Jet’s fleet —be it in pilots and crew or maintenance of aircraft. Of course, the one negative fallout of the Tata buy might have been an end to the Jet brand. That would have been a loss for everyone. Jet Airways has stood for excellence as an Indian brand and offering in aviation circles worldwide. It’s a member of some global alliances.

For Jet Airways too, when I think about it, a Tata buy sounds like a better option than any fund infusion — Etihad or other. Even if Etihad increases its stake in the airline and bails it out of the present crisis, Jet’s inherent inadequacies in the present environment — I refer to its model and cost structure — would remain largely unchanged. If Etihad wants to make sure that the airline actually remains one of the serious players, some serious reworking of its domestic operations is called for. Infusing more funds may end up like what the government is doing with Air India: more good money after bad.

Industry experts also argue that while Goyal cannot be denied credit for what he set up, it may be best for the company to move out of his charge now. Goyal is older now, has made a fortune for himself in the bargain and doesn’t have any clear line of succession. They argue that the airline —which is a public entity — needs to be freed from his clutches and a fresh look at its business and operations might be the need of the hour. It may be Goyal’s baby but there is a “whole family to be considered here” (read: Public shareholders and close to 16,000 employees), as one aviation analyst argued.

Many industry experts expect to see three major large players cornering both India’s domestic market and emerging as credible players on the international circuit. While IndiGo is one of the three, the other two remains anybody’s guess. A Tata-Jet combine would have sealed the second contender. As things stand, this remains uncertain.

Meanwhile, the Jet management is busy pruning loss-making routes, cutting staff wherever possible and economising in every way thinkable. A neater, smaller, niftier Jet is on the cards.