Stocksbaazigar discussed Jet Airways Crisis in detail in November 2018 in the post Jet Airways Crisis explained. It was predicted then that deal with Tata Group won’t materialize as the Founder Naresh Goyal wasn’t ready to cease his control over the aviation company which he started in 1993. Jet Airways has the second largest Market share in India after Indigo in the Aviation sector. Naresh Goyal is a pioneer of Private Aviation industry in India. In 1992 when the Government of India accepted the Liberalization, Privatization and Globalization reforms under P. V. Narasimha Rao Government, he was the first to take a leap of faith with the incorporation of Jet Airways in 1993 which became fully functional airlines in 1995.
Jet Airways served 26 years to Indian and Foreign Customers before all its flights getting grounded recently. We have already discussed all the reasons for this Financial crisis in the above-mentioned post. Now, let’s analyze the current situation of Jet Airways.
Naresh Goyal and his wife stepped down
Founder Naresh Goyal has 51% stake in Jet Airways which he founded in 1993. He and his wife Anita Goyal agreed to step down from the board of Jet Airways after their board meeting on 25th March. Etihad Airways which owns a 24% stake in the company also decided to step down. Employees of Jet Airways and all the experts in the Aviation industry blamed Naresh Goyal for not taking timely actions and made him cease the Chairmanship of the company.
Jet Airways grounded all its flights
The Interim Management set up to monitor the situation decided to halt its all operations and grounded all its flights after unpleasant situations like Strike by Pilots, Protests by Employees, etc. after intervention by Government. It is clear that Government has a soft-corner for Jet Airways which is saddled with more than $ 1 bn debt and may face the fate of Kingfisher Airlines very soon. But they won’t take any action now thanks to the Loksabha Elections 2019. Supreme Court questioning the forceful control of Jet Airways by lenders to find new Buyers for it as per the Revival Plan has also created the panic in the market.
Jet Airways Shareholders are worried
Kingfisher Airlines has a similar script like Jet Airways. KFA acquired Air Deccan and its problems started. Jet Airways took over Air Sahara and its problem started. The debts started increasing thanks to increasing ATF. This lead to erosion of the valuation of Jet Airways significantly. We saw stock price touching 158 last weak which is a big concern for all the 1,58,000 Retail shareholders who are stuck in it. Only five Mutual Funds has some exposure in Jet Airways but they were smart enough to reduce their exposure significantly over the quarters. Indigo and SpiceJet were preferred over Jet Airways by them which saved them.
Vijay Mallya took a dig at Government
Kingfisher Airlines Ltd and Jet Airways Ltd both served premium clients and had healthy rivalry before former Airline went bankrupt and willful defaulter Vijay Mallya ran away from India. When the ‘Revival plan’ of Jet Airways came out, Mallya couldn’t stop himself from showing his anger on Government. In a series of tweets, he targeted both Government and Jet Airways. He claimed that he could have saved KingFisher Airlines easily if Government had bailed out it the way they are planning to bail out Jet Airways.
He may be right about the partiality Government is doing in this case but people are aware that Vijay Mallya is ‘Bhagoda’ while Naresh Goyal did not run away from the situation. Goyal neither diluted his stake in JetAirways nor stopped his attempts to find a Buyer who can save Jet Airways. He was ready to reduce his stake from 51% to 15% in the possibility of Win-Win deal with potential buyers.
Customers react to JetAirways Crisis
Frequent travelers of Jet Airways are really upset to see the ongoing development in Jet Airways Ltd. They showed solidarity to the employees of Jet Airways who served them for so many years. They are really optimistic about the survival of Jet Airways. Not all customers are that loyal.
Many customers of Jet Airways faced inconvenience when flights were canceled on last minutes and they didn’t get refunds of the same. They showed their anger on Social Media. Travelers who pre-booked seats in Jet Airways for their summer vacation went to Andheri office for their refunds but they were requested to cancel the tickets through the platform they booked the tickets. It is said that those who booked tickets directly using Website and App of JetAirways will get a refund within 7 days. But those who booked tickets through agents have to wait for an indefinite time.
Jet Airways stopped its operations on 17th April 2019 which created a great vacuum in the sector. The airfare tickets are skyrocketing by almost twice the price. Low fare No-frills airlines are getting benefited by Jet Airways Crisis. Unfortunately, premium clients who travel by Jet Airways rather than low-cost airlines only for the good experience of traveling are missing Jet Airways the most.
Jet Airways Employees seek President’s intervention for salary dues.
Jet Airways Pilots didn’t receive their salary for 3 months. Other staff didn’t get a salary for last month while Executive level employees have not got any salary from last 7 months. Aviation Minister Suresh Prabhu and DGCA Chief both raised their hands by saying that Jet Airways Ltd being Private Airlines, they must seek clarification from the Interim Management of Jet Airways about their Salaries. Govt itself facing problem to run Air India which has more debts than Jet Airways and 76% disinvestment plan in it has been postponed due to some unavoidable reasons.
Jet Airways Employees have decided to approach Prime Minister Narendra Modi and President Ram Nath Kovind to seek their intervention for their salary dues. They are desperate now as they don’t have any guarantee of their jobs nor money to feed their children. 40% of employees in JetAirways have married to their colleagues in the same company which has increased their problem further as both the Husband and Wife are facing the same fate under Jet Airways. 23000 employees of Jet Airways are a big human force and if they all will lose their jobs, it will be shameful for India.
Jet Airways Crisis is benefitting the competitors in a big way.
The Indian Aviation industry is a growing industry. Players like Indigo, run by Interglobe Aviation which manages to absorb Aviation Turbine Fuel rise and yet makes good profit margin is now number one leader in Private Aviation sector in India with 43.3% market share in the domestic market. Indigo and SpiceJet are the only two other listed companies in this sector after Jet Airways. Investors who are selling Jet Airways shares are buying shares of SpiceJet and Indigo. SpiceJet surged by over 74% in 1 month while Indigo surged by 18% in the same period.
Post Jet Airways Crisis SpiceJet hired 100 pilots, 400 cabin crews and technical staff from Jet Airways. They won’t stop on 500, they will hire more staffs of Jet Airways in walk-in interviews. Indigo has not disclosed the number but it is also hiring highly trained professionals of Jet Airways. Employees of Jet Airways are joining the Competitor Airlines in as low as 25% to 50% of their salaries in Jet Airways. There are many employees who might leave the aviation sector and join other sector Jobs in the coming period. We have seen many businessmen offering them jobs by declaring it on Twitter and LinkedIn.
What will happen to Jet Airways in the future? Is revival possible?
Is revival of Jet Airways possible? The answer is YES. But before discussing it let’s assume if Govt decides not to intervene then what will happen? Can Indian Aviation afford to let it die? The answer is absolute YES. We have seen that within 5 years KingFisher Airlines Ltd is completely forgotten by the customers as the vacuum is filled very easily by the competitors. Same will happen with Jet Airways. Competitors are already contacting the lender of Jet Airways SBI bank to seek permission to use Boeing 777 aeroplanes on lease basis which are in the grounded state since 17th April. Neither Market will suffer nor customers will suffer. Only staff of Jet Airways which will lose their jobs will suffer in this. So clearly, the Government should intervene in saving Airlines. But Banks has already requested Government not to pressurize them to lend Jet Airways further which can increase their NPAs further.
If Etihad Airways decided to increase its stake from 24% to 49% and if Banks/Lenders succeeds to get Buyers who can buy a huge stake in Jet Airways, then only the Airline will see some hope for survival. 100 NRI investment is accepted in the Aviation Sector. Bank will convert debt into debenture shares under the credible and concrete revival plan. SBI refused to give Rs 400 Cr interim loan to Jet Airways because it has not yet created a plan which will get approved from DGCA and Aviation Ministry. After Loksabha Elections of 2019, I am hopeful that Banks will come-up with good revival plan and Government will help it in the regulatory framework.
What to do in Jet Airways share?
Jet Airways Ltd share has destroyed the wealth of Investors who bought it in the range of 280 to 360 when Tata Group showed interest in buying a stake in it. When the deal was called-off stock never saw that level again. It was trading in the range of 210 to 280 for several months. Recent developments have created panic in the investors and eroded the valuations of Jet Airways significantly. It is better to stay away from such risky counter which falls 25-30% after every bad news in it. Very few Investors think that Jet Airways won’t repeat the KingFisher Airlines story. They will accumulate the Stock whenever it will fall further.
Mind you, Majority of Investors think otherwise. Sellers are more than buyers for this stock. This stock is now highly News-Sensitive. With more than Rs. 8500 Crore of debt and Operations stopped completely, this is the worst company fundamentally. And Investors should stay away from it. High-Risk Traders can make money in it with every positive news. If you have stocks of Jet Airways, do not average it. Don’t let good money follow bad money. If by any chance you get an exit in the future, sell all the shares completely and invest that money in fundamentally good stocks from other sectors.
Disclaimer: This is an Educational post. Stocksbaazigar is not responsible for any of your gain/loss. Please consult your Financial Advisor before taking any position in this stock. Deepak Doddamani is not SEBI registered advisor. He is NSE’s Certified Investment Analysis Professional and NSE’s Marketing Professional Level – 4. Thank You.