The turbulence at Jet Airways seems to be getting stronger with each passing day. Unless a quick turnaround strategy for the airline can be found, it is widely anticipated that the airline may cease to operate shortly. Lenders to this troubled airline, led by the State Bank of India, are working out a rehabilitation and restructuring plan, which primarily focuses on getting a large global airline into the cockpit of Jet Airways in a bid to ensure stability in its day-to-day operations.This is where things get tricky. Abu Dhabi-based Etihad Airways held a 24% stake in Jet Airways at the end of the September 2018 quarter, and while there has been considerable speculation in the media that this Middle Eastern airline would take control of Jet Airways, there has been no official announcement to that effect. A key sticking point relating to global players taking control of the airline relates largely to the 51% stake held by the promoter Naresh Goyal in the airline. Media reports indicate that Etihad Airlines wants Naresh Goyal’s stake in the airline to be reduced considerably, possibly to 22%-levels, before it takes the reins at Jet Airways. Also, it is understood the above global airline wants the role of the existing management in running the airline to be reduced considerably.Media reports also indicate that Naresh Goyal is willing to invest Rs 700 crore in the airline provided his stake does not go below 25 per cent. In an emailed reply to questions sent on the future course of Jet Airways, senior officials at Jet Airways referred to their earlier press release wherein they have highlighted cost cutting and debt reduction measures underway at the airline along withthe lenders working on finding a comprehensive resolution plan.Also read: Plan to Buy Beleaguered Jet Airways Flies Into Rough Winds With Tata BossesJet Airways stock rose 5% on Thursday’s trade to close at Rs 284.8, with investors optimistic that a solution to the airline’s woes could be found quickly by banks and financial institutions, and the airline could once again take off. Nevertheless, the stock is hovering not too far from its 52-week low of Rs 163 that was reached on October 1, 2018.Where the nosedive startedIn early January 2019, the troubled Mumbai-based airline highlighted that its payment of interest and principal instalment, due to a consortium of banks on December 31 2018, had been delayed due to a temporary cash flow mismatch.In its results for the September 2018 quarter, the airline had highlighted that its next due date for payment of interest for non-convertible debentures was December 17, 2018, and it amounted to nearly Rs 36 crore. And there is no clarity on whether Jet Airways has made the above payment, given no reply received from the company.The broader airline sector had been adversely impacted with global crude oil prices surging from $70 per barrel levels in mid-August 2018 to nearly $86 per barrel levels in early October 2018. As a result, for airlines like Jet Airlines, the key operating cost (airline fuel expenses) as a percentage of revenues from operations rose 1220 basis points y-o-y to 39.3% in the September 2018 quarter. The inability to pass on higher fuel costs via higher ticket prices has substantially impacted the health of the airline sector, point out analysts tracking the sector.Also read: Tata Sons Pursuing a Controlling Stake in Debt-Laden Jet AirwaysThe impact of higher fuel prices had also impacted Jet Airways’ rival InterGlobe Aviation, which operates Indigo Airlines, and it had reported a net loss of Rs 652.1 crore for the September 2018 quarter versus a profit of Rs 551.5 crore a year earlier. Global crude oil prices have dropped nearly 30% from their peak in early October and it should help improve the outlook for the broader airline sector, going forward.Financial difficulties at Jet AirwaysJet Airways has not yet declared its December 2018 quarter results and enable potential investors to analyse the troubled carriers’ latest financial position. Earlier, Jet Airways reported a net loss of Rs 1,297.46 crore for the September 2018 quarter owing to soaring global crude oil prices. The airline was also finding it difficult to finance its day-to-day operations, with its current assets (which include bank balance and trade receivables) amounting to nearly Rs 7,784 crore at the end of the September 2018 quarter while its current liabilities amounted to Rs 15, 997.5 crore.Also read: Jet Airways Cancels 14 Flights as Pilots ‘Sick’ Over Unpaid SalariesCurrent liabilities of Jet Airways include borrowings and trade payables. It is understood that Jet Airways owes money to its employees, vendors and lessors, and it is in active discussion with them. The aviation community and lenders to Jet Airways still have memories of the earlier default of Kingfisher Airlines. Clearly, a quick solution is needed, in a bid to ensure that Jet Airways is able to fly once again.Amriteshwar Mathur is a senior business journalist.
