There's nothing left in Jet Airways- is there a case for investing?

Jet airways has stopped flying and the lead banker SBI is trying to find an investor to resurrect the airline. There's lots of emotions around the airline that was flying for 25 years but is there any reason someone would like to pump in 10s of thousands of crores of rupees?

Prima Facie, No.
What assets is Jet Airways left with?
A. Planes? No. Most planes are taken back by lessors, or in the process of being done so, some are already re-leased to Spicejet or other airlines. Most planes left on the ground are cannibalized for spare parts etc.  So the core asset of an airline- airplanes is not there.

B. Employees? Best of the employees would have already found jobs in other airlines or other companies. Various key executives including CEO and CFO have resigned. Rest of the employees, if required, can be hired fresh in the name of new airline, probably for lesser salary, than spending crores on their unpaid salaries and resurrecting jet.

C.Airport slots? No. They are being slowly given away to other airlines. Doesn't make sense to invest insane amount on Jet Airways to get these slots as for fraction of that money one can bid for them at airports at get it.

D Other assets? No. Like office, ground vehicles etc: these aren't just worth it- most are probably leased/rented and not fully owned.

E. Brand Image? People's memory is short. Starting new airline might be better proposition than trying to leverage Jet Airways brand name- or whatever left of it.

Overdue loans- close to 10000 crores to Banks (loan + interest)
Overdue payments to vendors, aircraft lessors, employee salaries, airport fees, fuel bills, unprocessed customer refunds on cancelled flights and so on- would probably add up to another 10000 crores.

So one is looking at a liability of 20000 crores just to clear existing dues and start from zero. A serious investor may be able to convince banks and other vendors to take a haircut- say 50% loss and pay only the half- even that is 10000 crores of liabilities. That is a massive 1.5 billion dollars USD. Plus a few thousand crores more to get the planes ready for flying and keep flying in a loss for few months at least, till customer confidence returns and load factor reaches satisfactory levels to break even.

Let us assume someone is ready to pump in 10000 crores- what should be their priorities?

  • Employees would want all their unpaid salaries cleared
  • lessors want their dues settled
  • Banks will definitely want a part of their loans to be repaid
  • Vendors all over will press for pending payments
  • 1000s of passengers are yet to get their refunds for cancelled flights
So new owner will be squeezed from all corners before they can realize any benefit of their investments. If you were to invest 10000 crore to settle existing dues and another 5000 crore to support the airline till it recovers to profitability, how long do you think Jet Airways will take before giving positive returns on the investment? 

Most well funded airlines themselves are running in loss world wide, as the industry is unforgiving. Passengers go to where they can get cheap tickets- there's not much of a loyalty. Airlines are caught between trying to increase fares to reduce loss vs offering discounts to fill up the plane. If I had 10000 crores I would probably start a new airline afresh, which would make a much smarter and less expensive proposition than pumping all that money on a black hole like Jet Airways.

Naturally there's not been much bids for Jet airways despite some initial expression of interests. Etihad seems to be willing to put in a bit more funding provided all loans are written off and another majority investor is available, along with various other conditions- they are trying to protect their existing 24% stake.

Latest news is Darwin partners have made an offer of 14000 crores. Need to see how serious this is and how things shape up in the days to come.  Turning around an airline is difficult but not impossible. Spicejet was on the verge of collapse on 17th December 2014, but its founder managed to avert crisis and take airline back to profitability. Spicejet's problems were much smaller compared to Jet. There're more examples in the corporate world where companies everyone wrote off have risen back like a Phoenix.  Will Jet Airways be that lucky? Let us hope so.

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