By Elton Gomes
Tata Group has begun the process of due diligence of Jet Airways (India) Ltd. Tata Sons Ltd is looking to purchase a controlling stake in Jet Airways, two people directly aware of the development told Live Mint.
The discussions are being led by Saurabh Agarwal, chief financial officer of Tata Sons Ltd., while while Jet Airways is represented by its founder chairman Naresh Goyal.
An in-house team of Tata Sons is currently conducting due diligence on Jet Airways, which is expected to continue for the next few weeks, said one of the two people cited above, as per the Mint report.
Both Tata Sons and Jet were unavailable for comment. A source told Reuters that a potential deal structure could include Tata taking over Jet’s assets, including the planes, leases, pilots, and slots, but not the entire company.
The deal could be a much-needed lifeline for Jet, which has been struggling with its finances since August 2018.
When did the crisis start?
The news of Jet Airways telling its employees to take massive salary cuts sent shock waves through the aviation sector. The proposed salary cuts highlighted the problem at the private airline. The Naresh Goyal-led airlines told its employees that it would be unable to operate beyond 60 days unless cost-cutting measures, which included pay cuts, were put in place.
Jet Airways proposed salary cut for employees in August
In August, Jet Airways informed its employees that they would have to take a 25 percent cut in their salaries. The airline cited reasons such as increasing cost of operations, rising crude prices, and the falling rupee for the pay cut.
Theres no timeline as to how long this reduced salary will continue. Also, theres no clarity on whether there will be a refund of deducted salary at a later stage. All we know is it starts this month for employees starting from managers to the CEO, an airline source told the Economic Times on the condition of anonymity.
Days later, protesting employees and unflattering media coverage compelled Jet to scrap the salary cut.
“The salaries were earlier put on hold because the management had expected to convince everyone to take a cut, but were released after the chairman’s assurance that there will be no cut,” an executive from the airline told the Economic Times.
Jet asked SBI for funding, DGCA conducts a financial audit
The cash-strapped airline asked the State Bank of India for emergency funding. But the bank demanded sufficient collateral and sought details on Jets future plans prior to lending any credit.
Sources revealed that Jet Airways CEO Vinay Dube personally met the State Banks top brass and sought their support. What SBI will require is a concrete plan on future cash flows, the payments that have to made for fuel and airline lease they are yet to get back to us, a source told the Economic Times.
Thereafter, the Directorate General of Civil Aviation (DGCA) was to conduct a financial audit of Jet Airways, after the Naresh Goyal-promoted airline postponed its June quarter (Q1) results, a person familiar with the matter said, as per a PTI report. A financial audit of airlines is conducted to assess their fiscal health and to ensure that they are not compromising on safety due to financial stress.
Etihad to the rescue?
Abu Dhabi-based Etihad Airways owns a 24 percent stake in Jet, and it helped the airline by infusing $35 million in October 2018.
Etihad helped Jet after entering an agreement with JPPL, Jet’s Frequent Flyer Programme, which is majority-owned by Etihad.
As part of this proposal, Etihad approved an agreement which allowed Jet Privilege members to pre-purchase discounted mileage redemption seats from Jet Airways.
Jet airways reports further losses
According to recent reports, Jet Airways will stop flights on less profitable routes and will add capacity to more lucrative markets, as efforts to lower costs and boost revenues amplify.
The development comes after the private airline posted a worse-than-expected loss for the third straight quarter. Mumbai-based Jet Airways plunged to a net loss of Rs 1,297.46 crore in the three months ending September 30, excluding its units.
“The airline has embarked on a comprehensive review … The measures will include rationalisation of operations on select, uneconomic routes,” Jet said in a statement, adding that it will be redeploying planes on more productive domestic and international sectors.
The review is expected to help establish a more efficient and economically viable network, which will focus more on profitability rather than market share, the airline said.
Elton Gomes is a staff writer at Qrius