Despite the takeover, it may be a good 4–6 months before see the airline take off again!
It’s a long runway ahead for Jet Airways!
While market sentiments continued to remain positive and stocks locked on the upper circuit for 13 straight days, it’s a long road ahead for Murari Lal Jalan and Kalrock Capital, before Jet Airways takes off again!
We all know that one of India’s favorite airlines Jet Airways ceased operations on April 17, 2019, last year! Over 18 months, there were many rumors of potential takeovers and discussions between potential owners and the lenders’ committee!
Finally, on October 16, the committee announced that Murari Lal Jalan and Kalrock Capital would be the new owner of Jet Airways.
Before this, rumors had already hit the market on October 8, that Murari Lal Jalan and Kalrock Capital would be the new owners of the airline. On October 9, the committee addressed rumors that they would vote to decide the new owners by October 16.
The rumor in the stock market was enough to start in what has been a 13th straight day of it locked on the upper circuit. In other words, if you bought Jet Airways stock on October 7, you already have ~78% returns on your investment.
It’s amusing, because a defunct airline, on the road to recovery, is trading at a higher rate than Spicejet, an airline that:
A) Remained the only operational airline, operating cargo flights to full capacity during the lockdown.
B) Was profitable, before the pandemic, and ever since Jet Airways went into insolvency in April last year!
While the fine-prints of the plan of Jalan or Kalrock aren’t clear yet, this is the reported preliminary idea:
- To pay out $117.9mn (₹860cr) to all lenders.
- To “relaunch Jet Airways as a full-service airline, but with a special focus on cargo”.
- Banks will get a 9% stake in the airline.
- Employees will be offered a 75% stake in the ground handling arm PLUS a “financial incentive” close to ₹20,000 ($273) each.
While the sentiment remains positive, it will take a whole lot to get the new ‘Jet 2.0’ off the ground:
1. Pending NCLT approval: National Company Law Tribunal, India’s bankruptcy tribunal, has to accept the plan forward by the new owners: Kalrock Capital and Murari Lal Jalan.
2. New management team: Once, and if, the NCLT clears the path for takeoff, a new management and operations team is needed. Maybe old faces return, maybe new ones will take their seats.
3. Aircraft Maintenance: The aircrafts are in a delipidated state, having been on the ground for 18 months, with only minor maintenance and engines being restarted by both Air India and Jet Airways during the period. The airline may have to spend $1 million per aircraft to get it airworthy.
4. Working Capital: The new owners’ have offered $136 million to restart operations. While this does allow funds for immediate maintenance and staff, according to Martin Consulting, the airline will need $1 billion or so to restart operations, possibly another $3 billion over the next 5–7 years to break even!
5. Slots: When Jet Airways was grounded last year, the Directorate General of Civil Aviation (DGCA) granted all of the lucrative domestic slots’ of the airline on a temporary lease basis to their competitors. It’s not clear if the airline can swoop back in and claim those slots, or would they be auctioned again!
6. Domestic Routes First: There is a rule in India that until you have 20 aircraft in your fleet, you cannot restart operations. That means the airline has to start domestic operations first. It may have a few slots handed directly but could be in for a tussle over its other slots, if and when operations grow.
7. Fleet: Jet Airways, at the moment, has a fleet of 12 aircraft: six 777–300ER (346 seaters), two A330–200 (256 seaters), and 4 B737 (170–190) seats. For domestic routes, the 777s may not do justice, and the airline will surely need more 737s in the fleet, meaning more lease payments!
8. Pandemic: Need I say more?
9. Aviation Expertise: IndiGo today is successful because the promotors had aviation expertise before starting the airline. Murari Lal Jalan has interests in mining and real estate in India, UAE, Uzbekistan, and Russia, while Kalrock Capital in a financial advisory and investment management company.
The silver lining for the promoters for now seems that the most aggrieved entities, the banks, have agreed to take a 90% haircut to make the deal happen! That means if the deal goes ahead, banks will only be repaid $109 MM (₹800cr) and gain some equity!
For the economy, it means more jobs will be created and some of the creditors getting their dues back.
It does look a mammoth task to get ‘Jet 2.0’ back in the sky, but all we can hope is to see one of India’s all-time favorite airline back in the skies again!
What do you think the future is for Jet Airways? Will they retake the skies as a new and refurbished airline, or even if it restarts, will it crash before taking off? Share your thoughts!
