By Elton Gomes
Jet Airways recently sparked outrage after telling its employees that salary cuts were in the pipeline. The news once again shed light on airlines battling several challenges in terms of making profits. Jet informed its employees that the airline would not be able to operate beyond 60 days unless cost-cutting measures are put into practice.
What did Jet Airways say to its employees?
According to an August 2 report in the Economic Times, Jet informed its employees that it would be applying a 25 percent cut in their salaries, on account of a falling rupee and an increase in cost of operations for the airline. The salary cuts were in the range of 5 percent for those earning Rs 12 lakh annually, and would go up to 25 percent for those whose salaries were 1 crore and above.
“There’s no timeline as to how long this reduced salary will continue. Also, there’s 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,” a source told the Economic Times.
However, a few days later, due to protesting employees and bad media coverage, the airline decided to scrap the salary cuts. “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 said on the condition of anonymity, the Economic Times reported.
Chairman Naresh Goyal assured that staff that the airline was in a comfortable position to encash on the growth that the Indian aviation market was offering. Previously, rumours of losses were flying thick and fast after the company posted a loss of Rs 1,040 crore for the fourth quarter of fiscal 2018. Jet’s top brass had also reportedly told employees that though IndiGo had more employees, its salary outgo was lower than Jet’s.
The company has been facing financial probes in recent times
According to a recent Reuters report, Jet Airways sought to reassure investors that it is meeting its payment obligations to lender and other dues like staff commitments. The company released a statement a day after its shares fell to a three-year low, following an announcement that it had deferred its quarterly earnings report.
Citing concerns over Jet’s financial health, aviation regulator – Directorate General of Civil Aviation (DGCA) – has decided to conduct a financial audit of the company. The DGCA has already reviewed the financial health of the carriers, and has also conducted a special audit of Air Deccan.
Financial audit of airlines, which has been done in the past, is conducted mainly to assess the airline’s financial health and to ensure that they do not compromise on safety on account of financial stress. The financial audit of Air India was necessitated since the airline has been defaulting on paying its employees and grounding several aircraft due to payment issues with vendors.
On August 13, the Economic Times reported that the cash-strapped carrier has initiated a formal stake-sale process in order to raise $350-400 million from private equity firms. Bulge-bracket funds including Blackstone, TPG, and Indigo Capital Partners have been approached in this regard.
As per the Economic Times report, sources have claimed that a global investment bank has been roped in to assist Jet’s chairman Naresh Goyal in raising funds. In addition, the company is attempting to monetize its frequent flyer programme, which it co-owns with Etihad Airways. The programme is valued to be at $1.1 billion.
People privy to the matter have also claimed that Jet has been tapping into other airline partners, largely Delta Air Lines, for funds. Etihad, which owns 24 percent in the airline, seems reluctant to invest more in the company after having paid a chunk of Jet’s bills after the 2012 investment.
What Chairman Naresh Goyal said
Jet’s Founder Chairman Naresh Goyal said that he felt “guilty and embarrassed” as several shareholders lost their money as the airline’s shares plunged on account of its financial concerns. Addressing shareholders at the company’s annual general meeting, Goyal admitted that both competition and fuel prices are on the rise. “Lots of shareholders have lost money, I feel guilty and embarrassed,” he said, the Economic Times reported. Taking into account the negative publicity received by Jet, Goyal said that a new committee would be set up to improve its public perception.
Things seem to be looking bleak for the founder chairman. An opinion piece in Swarajya Mag claims that Goyal has two options ahead of him: let his airline sink into losses, or save it by giving up control.
Elton Gomes is a staff writer at Qrius
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