All Jet Airways India Ltd.
ever needed was 1 rupee, or just 1.4 US cents, for providing hot meals and cold towels.Since even that modest goal has proven elusive, India's longest-surviving private airline now needs bankers with spine to keep flying.It's been clear for some time that Jet, falling behind even on pilots' wages, was going to skip a debt payment soon.
Now that a default on bank loans has finally happened, let's spend a minute on brutal economics of missing rupee.As a full-service carrier, India's second-largest airline spends that much more per available seat kilometer than its bigger rival, IndiGo.
That's excluding fuel costs, which are volatile and exorbitantly taxed but comparable for all players.The problem is that as 2015 was ending, Jet was earning only half a rupee more in revenue per seat kilometer than IndiGo.
That was just before InterGlobe Aviation Ltd., owner of IndiGo, set out to expand its scale of operations 2.5 times faster than what Jet could muster.
The market leader also drove prices lower by forgoing revenue of 0.9 rupees per kilometer over first nine months of 2016.Jet was too indebted to match its rival's aggression.
When it tried, by sacrificing revenue of 0.3 rupees per kilometer, it ended up charging customers less than it cost to fly them.
Then, starting September 2017, oil prices shot up for a year.
The whole industry was shaken, but Jet had already keeled over.The fuel-price surge has now receded, and airline is exploring cost-cutting options.
But saving $100 million a year on maintenance contracts won't make debt problem disappear: Repayments of as much as 63 billion rupees ($900 million) are due by March 2021.
Of its fleet of 124 at end of September, Jet owns only 16 planes that can be sold.Lengthening working-capital cycle has its limits.
Lessors have to be paid lest they take aircraft away; employees have families to feed.
A plan to monetize airline's privilege program hasn't gone anywhere.
Who'll buy into Jet Privilege Pvt.
when there are doubts about carrier's future Speculation that Tata Group could be a white knight has also waned.
Nor is it clear if Etihad Airways PJSC - which must now regret picking up its 24 percent stake five years ago - would want to back Jet founder Naresh Goyal, 51 percent owner, once again.
The aviation market in Middle East isn't exactly brimming with optimism.There are probably only a handful of good options now.
Either Etihad doubles down by making a fresh investment; or board finds a new owner who infuses equity by diluting Goyal and Etihad.
To succeed, both these approaches would need real threat of banks referring Jet to bankruptcy tribunal.
Goyal would lose control of airline involuntarily, yet carrier would continue to operate with fresh super-priority funding (which will rank higher than existing debt).State Bank of India, airline's lead lender, is waiting for a forensic audit of Jet's accounts.
Time is not on its side: General elections must be held by May.
The government of Prime Minister Narendra Modi won't like bad publicity from a collapsing airline so close to polls.
However, if state-run lenders take a haircut as part of a restructuring, opposition parties would pounce on Modi for causing losses to taxpayers to help private businesses.
It would take a gutsy banker to do anything at all.Still, not acting urgently can do bigger harm.
The 2012 unraveling of Kingfisher Airlines Ltd.
provides a cautionary tale.
Left holding worthless brand of grounded Indian carrier, among other collateral, Indian lenders should know by now that a defaulted airline loses value exponentially if cash-flow woes make it defunct.Kingfisher's $1.3 billion default preceded India's bankruptcy regime.
Now that a modern insolvency process does exist, its strength deserves to be weighed.
Whether threat of losing his life's work and legacy is enough to force Goyal to accept an out-of-court restructuring would be one such test of law.
There's plenty of value in Jet, provided it can tweak its business model, or earn that elusive one rupee.(Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services.
He previously was a columnist for Reuters Breakingviews.
He has also worked for Straits Times, ET NOW and Bloomberg News.)Disclaimer: The opinions expressed within this article are personal opinions of author.
The facts and opinions appearing in article do not reflect views of TheIndianSubcontinent and TheIndianSubcontinent does not assume any responsibility or liability for same.(Except for headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)