Jet Airways’ crisis- An eye opener?

Jet Airways Ltd. is an Indian-international aviation company based in Mumbai, India. It was founded by Mr. Naresh Goyal and his wife in April 1992 and began its operations in May 1993. It was one of the best service provider aviation company in India with owning 120 aircraft and providing services up to 1000+ destinations. On 17th April 2020, it had to shut down its operations because of various reasons which led to the unemployment of 20,000 workers and indirectly affecting the revenue of 60,000 workers. It also affected the Indian economy as it was holding a good share in the aviation industry.

The problem began in the year 2006 and the crisis has been consistent since then. Major reasons leading to the shut down of Jet Airways were:

Costly Purchases: In 2006, Jet Airways had a deal with Air Sahara for $500 million. Many aviation experts suggested Mr. Naresh Goyal not invest such a big amount that too in cash. This huge cash purchase led to liquidity crunches in the company

Ignoring the Competitors: Jet Airways ignored its biggest competitors like IndiGo, SpiceJet, Go air in 2005-06. These three companies cut their prices to attract customers. Jet Airways neglected the changing business environment and ended up losing its huge customer base

Poor Management by Mr. Naresh Goyal: Mr. Naresh Goyal believed in a Single Management Team. He handled everything under him only and he was advised by the experts to have at least 2 managers i.e. one for the operations head and the other for the finance head. He was a quick decision-maker and had made a lot of wrong investment decisions leading to a rise in debt of the company

Fluctuations in Crude Oil Prices: India is the largest importer of crude oil. During that time, the prices of crude oil went high as the value of the Dollar ($) was much higher than that of the Indian Rupee (₹). It affected overall aviation companies in the industry but Jet Airways was the one most affected by it as the financial cost was increasing which therefore reduced the operational cost of the company

Poor Cash Flow: After the cash-based deal with Air Sahara, the flow of cash in the company gradually decreased. For a company to expand, cash flow is necessary which can either be generated by operations or by investments. But in the case of Jet Airways, operations didn’t work and investment was not sufficient as all the potential investors didn’t agree to invest further. Etihad Airways, holding approximately 24% share of investment in Jet Airways, was asked to invest further but denied because of the unstable condition of the company

Debt & Financial Institutions: The huge loss incurred by Jet Airways forced Mr. Naresh Goyal to ask for help from Government-based financial institutions like SBI and PNB. The status of the company was so bad and dull that these banks denied their request even for the Boeing 777 planes as the mortgage. It had also defaulted on a loan of EXIM bank. It also offered a deal to TATA to invest in their company but they denied it. Jet Airways asked Government to release around ₹175 crores to pay a one-month salary to its employees. The debt of the company was around ₹8,500 crores. They asked for emergency funding of ₹400 crores which were denied.

Jet Airways is now owned by the new owners Kalrock Capitals (London based company) and Mr. Murari Lal Jalan (Businessman of UAE). The Jet Airways’ crisis is an eye opener for many existing businesses and start-ups mushrooming in the Indian economy. Lack of proper management and robust investment advisory led to downfall of Jet Airways. Key takeaways from such an incident would be to follow the rule of delegation and decentralization of authority which would lead to a proper and systematic manner of working in the company and same was not adopted by Mr. Naresh Goyal. Instead of purchasing aircraft on the cash-basis and making huge deals in one go, the company should adopt the credit-base system with installments payment, eliminating the pressure of lump-sum payment. Analyzing the threats (competitors’ strategy), opportunities (move-by-government), strengths (product quality), and weaknesses (liquidity crises) are very crucial for generating good revenue and establishing goodwill in the market. The company should first pay-off all the debts of the financial institutions and other companies so that it can have a good kick-start again. Seeking financial assistance from major and trustworthy financial institutions could also prevent the company from further crises. An important observation would be to adhere to the ever-changing business environment. Likewise, Nokia, once a market leader in electronics, lost its 23% of market share because it failed to cope with the trends in business environment changes. The hardships faced by Jet Airways are now a thing of past as the company seeks to revive its operations and rock the Indian economy again in astounding manner!

Manasvi Gupta