Jet's luck has finally run out: What its collapse says about India

Company News

It looks like Jet Airways Ltd.’s luck has finally run out. India’s oldest privately owned airline is on the verge of shutting down all its flights -- it already has perhaps fewer than 10 aircraft active -- because it simply doesn’t have enough working capital. It’s more than a billion dollars in debt and has lost money for the last four quarters.

On one level, you could argue that this is a good sign for India: Its institutions are holding up. State-owned banks are Jet’s biggest creditors and they seem unwilling to throw more money at the airline without a clear revival plan. This is a big change from the past, when they kept supporting one of Jet’s rivals, the ill-fated Kingfisher Airlines Ltd., long after it seemed rational to do so.

News also broke a few days ago that Jet’s founder, Naresh Goyal, was no longer bidding for the banks’ stake in the airline, perhaps because other shareholders wouldn’t play along. Too often India cash-strapped companies have managed to get their debt restructured, with state-owned banks taking a haircut while the “promoters” who control crucial amounts of equity maintain control of the company. That is an unhealthy lack of accountability and we should all be glad it doesn’t seem to be happening in this case.


 Jet has 23,000 employees and a devoted fan base, yet isn’t an easy company to love. I say its luck has run out because in the past it consistently seemed to benefit from government intervention that drove many of its full-service competitors out of the market. It’s the only survivor from the first round of private Indian airlines that started flying in the 1990s -- and, in many Indian sectors, that usually means that you’ve managed the government much better than your peers have.In the end, however, the market wins out. If you are competing against low-cost airlines that still somehow provide equivalent service in economy class -- not to mention a full-service airline, Air India Ltd., that’s state-owned and can absorb whatever losses it wants -- you can’t dodge fate forever...Read More