Jet Airways – Financial squeeze for more than a decade

Jet Airways’ journey towards a has-been is reflected in its stock movement. Its stock, issued at ₹1,100 apiece in its IPO about 15 years back, closed its first trading day at ₹1,304 and then about a month later, on April 26, 2005, it hit its lifetime high of ₹1,375.

Today, the stock quotes at ₹18, almost 98 per cent lower than its issue price. From ₹7,900 crore at issue, the stock’s market capitalisation is now only about ₹203 crore. With attempts at reviving the company over the last year almost coming to naught, liquidation may be the only way out – and shareholders may end up with nothing.

It’s a sad denouement of a once-promising airline, but one which was showing signs of poor financials for more than a decade. From a positive ₹2,000 crore as of March 2005, Jet Airways’ net worth doubled to more than ₹4,000 crore as of March 2008. But then it started going downhill. The company’s net worth first turned red in FY2012 (negative ₹10 crore as of March 2012), worsened consistently, and by March 2018 it had ballooned to a negative ₹7,000 crore or so. As of December 2018, the net worth would have turned negative to the extent of more than ₹10,000 crore.

Net worth is the shareholders’ equity that comprises share capital and accumulated reserves, profits and surplus. The airline has not yet declared its results for the year ended March 2019.

This negative net worth was due to huge losses that it suffered in most of the years since its listing. On a consolidated level, Jet Airways has posted losses in 10 out of the 15 fiscal years so far since listing — FY2014 being the worst, with a loss of more than ₹4,000 crore. FY2019 would have been worse, since the airline had posted consolidated losses of ₹3,300 crore in the nine months ended December 2018, and the March 2019 quarter was when the airline’s crash intensified with large-scale grounding of aircraft.

The airline was back in the black in FY2016 and FY2017, only to again slip into losses in FY2018.

Among the many factors for the airline’s decline was its dispute-ridden acquisition of Air Sahara (later renamed JetLite). Jet’s woes with the bottomline started in FY2008, the year it bought Air Sahara. JetLite consistently made losses and in the March 2014 quarter, Jet Airways took a write-down of ₹700 crore on its investment in JetLite — a reason for the record loss in the period.

Not just that, Jet’s own aggressive debt-fuelled expansion plans also resulted in a sharp jump in its debt levels. In 2005, the airline’s debt was less than ₹3,000 crore. But by March 2008, its consolidated debt had ballooned to more than ₹12,000 crore; this rose to about ₹16,600 crore by March 2009. While the debt level moderated over the years, it remained significantly high (₹7,600 crore as of December 2018). Finally, the airline’s inability to repay loans in the December 2018 quarter triggered its eventual collapse.

Rising debt levels increased the airline’s interest costs sharply. But the biggest cost pressure came from fuel. Jet’s fuel costs shot up from about ₹1,000 crore in FY2005 to around ₹8,000 crore in FY2013 and FY2014 and would have breached these levels in FY2019. The airline was not able to pass on the cost increases to its customers due to a massive increase in competitive pressure — primarily led by low-cost carrier and market leader IndiGo.

The stake sale of 24 per cent in the airline in April 2013 to Abu Dhabi-based Etihad Airways for ₹2,058 crore was at a significant premium to Jet’s then stock price. But this too didn’t help eventually. The partnership unravelled in less than six years with Etihad refusing to put in additional capital without significant concessions. Lenders also refused to play ball, after initially agreeing to help. This and many other dashed hopes of capital infusion over the past year finally sealed Jet’s fate.