That sinking feeling

Jet Airways' never-ending financial troubles are spooking the industry as the wider implications sink in

As it is, the party seems to be over for India’s aviation sector. Oil prices are climbing, the rupee is weakening and they are entering a weak quarter. If that wasn’t enough, last week the industry was abuzz with the speculation that Jet Airways could go the Kingfisher way, only under the NDA’s watch. 

Phew! The political ramifications of that can only be imagined. I am sure this is alarmist and that we have all collectively discounted the fact that Jet Airways has a magician at the helm (chairman Naresh Goyal, known widely as NG in aviation circles) who has weathered many a storm and emerged the winner each time. But the magician has been performing for a while now, has less tricks up his sleeve and currently has fewer friends where it matters the most. 

In just two days of the airline asking employees to accept a pay cut, panic spread among its 16,000-odd employees and pretty much the industry as a whole. Jet Airways' PR swung into action to try and minimise the damage, even claiming that no salary cut had been sought. The stock market ignored them and went south. ICRA had downgraded the airline’s debt rating at the end of May.

Here’s what I gathered on Jet’s situation. The news like always is not good. Although the airline has reduced debt, it still has Rs 80 billion of it on its books. Several of the repayments are due in 2019 and 2020. Pent up payables till March 31, 2018, were over Rs 60 billion. April-July would have added to the losses with the situation worsening for all airlines — Jet being no exception. A source says that everything that can be pledged by the carrier has been pledged — be it future earnings through credit card, debit card or international sales. After eight years of losses, in 2016 and 2017, the airline did declare a profit but a large portion of that accrued on account of income from sources other than operations including the sale of one of their Mumbai properties. After exploring every possible option, the airline asked people to take a pay cut.

Understandably, the pilots — who are by now almost immune to this situation — called the management’s bluff and flatly refused to take any cut. A senior commander told me that the three harbingers of the bad news from the management end at the Mumbai meeting cumulatively earn Rs180 million a year. He says the management should begin with firing these three. The pilots argue the airline is absurdly “top heavy” and that the airline can make up what it hopes to save through their 15-20 per cent salary cut by firing a few of the top management officials, who, by their own admission, are responsible for the mess.

Many senior pilots dismissed the “60 day scare” as a regular management tactic deployed each time their salaries come up for negotiation. As one of them put it: “Usually we are told there is money to run for 15 days, so 60 sounds good!”. Others argued that a detailed investigation into Jet’s books is the need of the hour. 

Airline insiders and outsiders are asking other valid questions. Where will the money for 225 new aircraft come from if the airline is as broke as it claims? On some investigation I learnt that the aircraft purchase could in fact be Boeing’s way of helping out its old client. Aircraft are sold to airlines at lower rates than to lessors and the airline can make a profit on selling the same aircraft to leasing companies. This may help Jet.

The coming months should make matters clear but let me end with an anecdote a senior Jet commander narrated. He was recently piloting a flight from London and happened to have the chairman on board. Since he had been with the airline almost since inception, NG knows him well and had a brief chat with him. With a touch of regret, the chairman told him something he already knew: That the airline was not doing well. That the losses were totting up.

The commander pointed out that the planes were running full, oil prices were pretty low and the rupee had been reasonably strong. What then was the problem? Why was the airline perpetually in dire straits? He didn’t get an answer.

Is Jet likely to go the KFA way? I for one don’t believe so: The airline has been flying despite making losses in eight of the last 10 years. Being broke is business as usual. I see the latest tactic as a miscalculation on the part of the management — another in a series of mistakes.