Naresh Goyal's 21-year-old airline has been struggling. Its alliance with Etihad has done little good to either perception or reality. And the promoter seems to no longer hold sway over its navigation. It is a tough time to be Goyal
Over the last year, Naresh Goyal, known for his “ruthless passion” for his airline, has had to let go. Of a lot. Selling 24 percent of Jet Airways’ equity as well as a majority stake in its frequent flier programme which houses data about premium passengers. Selling slots at London’s Heathrow airport to Etihad Airways. Easing out his best friends Ali Ghandour and Vic Dungca from the board—both are airline industry men of global repute who had been by his side almost from the day he started Jet Airways. Sidelining or firing key staffers, including his wife Neeta, who had helped him steer the company through financial, regulatory and legal minefields—financial compulsions of the past few years made this move imperative. But these painful changes, made with the intent of staging even a semblance of recovery, have not restored Jet’s fortunes in any significant way. Financial year 2014 was in many ways the lowest point for what was once India’s most powerful service brand. Loss for the year is expected to be around Rs 2,000 crore. Till Q3, revenue fell 10 percent over the previous year and losses stood at Rs 1,514 crore. In its latest available results (Q3FY14), Jet recorded a (standalone) loss after tax of Rs 267crore, of which Rs 259 crore was from its domestic operations. Add the woes of subsidiary company Jet Lite (formerly Sahara Airlines), and the problem gets compounded. Jet Lite has negative net worth, and continues to make losses despite loans (Rs 180 crore till December 2013) from its stressed parent.
These numbers are chilling, but it isn’t yet time to pen an epitaph. However, there is certainly a cautionary tale to be told, deconstructing the tailspin that the 21-year-old airline finds itself in.
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Goyal has typically administered Jet Airways closely. Albeit away from the notorious traffic jams around his airline’s corporate headquarters at Andheri east in Mumbai. For close to two decades, he worked from his home office in London. More recently, it is from his new base in Dubai, where he bought a posh 18,000 sq ft penthouse overlooking the Marina.
Senior managers of Jet, particularly in the operations and finance functions, have a bag packed and are ready for travel on most days. They are used to the chairman’s summons, and make quick trips to discuss one issue or another. Some of the trips are to Abu Dhabi, where Jet’s new strategic investor Etihad Airways is based. But more often, they meet Goyal in Dubai. The discussions centre on getting the airline back on the rails and tackling the airline’s biggest problem—its costs.
For the Jet executives, there is a sense of hopelessness about these meetings with the chairman. Attempts to cut costs have been ongoing, for as long as they can remember, yet the airline is in its poorest financial and operational shape. Many staffers, especially pilots, say they now keep close track of their bank accounts, making sure that salaries and allowances are being credited in time. And so far, they are.
Shifting Sands
Though not many saw it then, India’s two largest network carriers, Jet Airways and Kingfisher Airlines, began a race to the bottom from 2007-08 onwards. Back then, hubris ruled. Competing intensely with each other, both Goyal and Vijay Mallya moved fast with their plans to expand their domestic and international footprint. Mallya’s Kingfisher Airlines, the newer of the two, had no profits and a higher cash-burn. It reached the bottom first but, two years on, Jet Airways is not very far behind.
For this story, Forbes India spoke to airline industry professionals from across the world. Goyal did not agree to an interview, nor did he respond to questions. We did speak to two of his former CEOs, one former COO and senior managers present and past.
First, a little background. The decline of Goyal’s fortune has been long drawn. It started in 2008 after low-cost carriers (LCCs) took root in India. By 2012, the crisis had peaked and Goyal could see his airline gasping for capital. Bankers, already stuck with NPAs from the notoriously value-destroying industry, refused to lend any more. The State Bank of India, for instance, is stuck with huge exposures to both Jet and Kingfisher. Sources in infrastructure finance company IDFC recall turning the screws on the Jet management and forcing an agreement to repay Rs 1 crore a day. IDFC has since recovered its loan.
Future Tense
The new Indian skies
(This story appears in the 02 May, 2014 issue of Forbes India. To visit our Archives, click here.)