April, 15, 2019
Forbes - India’s Jet Airways is undergoing a spectacular collapse and even last-minute financing might not be enough to get the airline back in the air. It's looking like another failure for Etihad Group, which has tried to buy its way into closed markets by taking stakes in a number of struggling airlines.
The growth of low-cost competition in India, a rise in fuel prices and an unfavorable exchange rate contributed to the $1.2 billion debt that the airline faces today.
The crisis at Jet Airways has been allowed to go on too long, says aviation industry analyst Thomas Jaeger, CEO of ch-aviation GmbH.
“It is quite unusual that airlines are allowed to carry on operating for such a long time despite not paying salaries, loans, and dues with public bodies,” he says. “The Indian market has been very competitive for many years with a much higher than worldwide average market share of low-cost carriers, and the Gulf carriers’ capacity and more competitive hubs in Dubai and Doha, for example, making the competitive landscape a tough one to operate in for a full service carrier like Jet Airways.”
Through his flight distribution business, Jetair, Naresh Goyal, founder of Jet Airways, is reportedly working with Future Trend Capital, Delaware and London-based Adi Partners to save the airline.
Etihad Aviation Group, which currently holds 24% of Jet Airways, has hesitated to increase its stake and failed to reach terms for additional financial support. Etihad had wanted Goyal to cede control of the airline, which Goyal agreed to in March of this year. However, the situation has only worsened and Jet Airways is still waiting for a rescue package.
“There have been board conflicts between Etihad and Naresh Goyal, with arguments over who runs Jet Airways and makes which decision, which is also similar to what happened at other carriers,” Jaeger says.
Etihad's influence on these partners, Jaeger says, has not always been positive in part because the objective of the investment has been to strengthen Etihad and its base in Abu Dhabi. “[Etihad] did invest in Jet Airways with the intent of buying feed for its global air hub ambitions in Abu Dhabi, and feeding that hub was not necessarily in Jet’s best interest,” Jaeger says.
Etihad has not hesitated to invest in order to quickly tear down barriers to entry in key markets around the world, and it expressly targetted vulnerable carriers to do so. When Etihad agreed to buy its shares of Jet Airways, India’s civil aviation ministry approved a new bilateral agreement with Abu Dhabi which allowed Etihad greater access.
“Just like other airlines that Etihad has invested in, Jet Airways already was not performing very well prior to Etihad’s investment. It has gone through a series of strategy changes, one of which was to more align its product with low-cost carriers, densifying cabins and shifting a significant part of its domestic flying to a no-frills model; and then a change of heart and switch back to the full-service model,” Jaeger adds. “All of these changes have certainly not helped Jet’s situation. There is some sort of a parallel between what happened to other carriers Etihad invested in–Air Berlin, Air Serbia, Air Seychelles, Alitalia, Virgin Australia–given all of them have been forced or encouraged to change their network to help to grow the Abu Dhabi hub.”
Running to Ground
Jet Airways had a fleet of 120 aircraft and had grounded all but seven of them by last estimate–six turboprops and one Boeing 737. The airline canceled all international flights on Friday as it faced an uncertain future, including the possibility that more of their aircraft might be re-possessed by lessors. One the airline’s Boeing 777-300ERs was reclaimed at Schiphol Airport last Wednesday due to the debt Jet Airways owed to cargo handler World Flight services.
As with Alitalia, a solution to Jet Airways' woes may come down to government intervention. The national carrier, Air India, is unable to expand fast enough to cover the gap Jet Airways might leave in the market, but it could do so through a government-backed merger of the two carriers. While merging the two very different organizations and brands might prove problematic, the government could simply step-in using the U.S. 'too big to fail' model of airline rescue packages.
“It appears to me that the Indian government has a key interest in keeping ailing airlines alive for as long as possible which could also be seen in earlier circumstances, i.e. with Kingfisher Airlines,” Jaeger said.
Jet Airways competes against state-funded Air India which also faces its own financial challenges. But despite problems with administration and heavy competition, there is a vast and growing market for all carriers serving India to satisfy.
IATA predicts that India will be the world’s third largest air travel market by 2036, following China and the U.S. and leaving the rest of the world far behind.
A critical gap in Asian connectivity has already become apparent as a result of the Jet Airways crisis. Demand for travel between India and Hong Kong, for example, is so high that passengers and airlines are now up against a capacity crisis that has sent airfares soaring.
While nothing is decided, the airline may simply fall into a permanent grounding. Competitors will have to find a way to close the gap. Tata Group’s Vistara, which itself has ambitions to grow its international routes, has not bid for a stake in Jet Airways. Instead, it appears to be waiting for Jet Airways to crumble so it can buy up the pieces.
- Marisa Garcia.