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Crisis in Jet Airways: Should we be worried?

By: Ramesh Vaidyanathan and Mansi Singh

For those who have tracked the Indian aviation market over the last few years, the recent developments at Jet Airways may perhaps be a déjà vu moment. Ironically, just as India is basking in its status as one of the fastest growing aviation markets in the world comes the news that there is trouble brewing at Jet Airways, one of India’s leading airlines with around 14.1% market share.

Not too long ago, Kingfisher, an airline with the second largest market share in India till December 2011 suddenly shut operations in October 2012, leaving a trail of destruction and permanently sullying India’s reputation in the aircraft leasing world. Then came the Spicejet scare in 2014 when the airline came close to shutting down with substantial net worth erosion, before a miraculous turnaround was masterminded by an ownership change.

So what exactly is happening at Jet?

Salaries were delayed to begin with, which perhaps did not trigger much of an alarm as the airline hasn’t exactly enjoyed a stellar reputation on that score. But things started piling up one after the other. Pilots were given an exit option without serving notice period as the airline tried to prune operations and cut extra flab. When the Mumbai airport operator refused lounge access to the business class travelers of Jet citing unpaid dues, the loyal well healed clients of the airline vent their ire on social media and vowed to move on to other options.

It was only expected that this will trigger some nervousness among the lessors. Not surprisingly, Jet reported to the stock exchanges in India that it has received notices from various aircraft lessors for payment delays/defaults and sought to underplay the development with the claim that aircraft lessors are mindful of the challenges currently faced by the Indian aviation industry and have been supportive of the airline’s ongoing efforts to improve liquidity. Not much of an explanation, really!


Some of the reasons are not far to seek. The burgeoning oil prices have hit the airline industry across the board. On top of it, the depreciation of the Indian rupee against the dollar has significantly bloated costs as most of the expenses are foreign currency denominated. The intense competition results in unrealistically low air fares and does not allow any price elasticity for fuel cost increase and the like. Jet also has varied, older and more expensive fleet as compared to the other airlines and aggressive competition from low cost carriers.

What is Jet doing?

Jet Airways has appointed global management consulting firms Boston Consulting Group and Goldman Sachs to help navigate the present crisis and plans to infuse fresh funds into the company. It has also inducted 225 fuel and cost-efficient B737 MAX aircraft, with 11 being inducted this fiscal year itself and introduced revenue enhancement schemes such as JetUpgrade which is an online bidding tool that allows passengers to avail an upgrade from Economy to Premiere/First Class cabins. The airline is also trying to sell its stake in Jet Privilege, the loyalty programme that it owns with Etihad Airways and, as per media reports, the venerated Tata group has begun due diligence for a potential acquisition of controlling stake in the airline.

While these developments are welcome, the question remains whether anything less than an ownership change is good enough. In the meantime, the best of talent seems to be rapidly deserting the airline.

Should the lessors be worried?

This may not be a Kingfisher moment just yet but lessors will be well advised to stay tuned. Much has changed in India (atleast on paper) since 2012 and the Kingfisher fiasco made India revamp its aircraft repossession regime. Lessors can now repossess their aircrafts within five working days by submitting the IDERA and other documents to the Directorate General of Civil Aviation.

While it may be too soon to talk about initiation of repossession proceedings, it is important for the lessors to watch the situation and initiate preliminary steps to ensure that no time is wasted when swift action is required. This could include the following:

  1. For any successful aircraft repossession, documentation is the key. Lessors should have in their possession and must be able to immediately produce documents such as IDERA, de-registration request letters from the Lessee addressed to the DGCA and de-registration power of attorney that will be required by the authorities for deregistering the aircraft from India, if the situation so arises.

  2. The airline must be asked to provide a written update on its present situation and also a confirmation that it has not defaulted in making payments to any creditor that may have a charge over the aircraft. Further, the lessors must also inform themselves on the order of priority under India’s recently enacted Insolvency and Bankruptcy Code and its overall impact in a potential default situation.

  3. It is trite to state that an aircraft without its records is worthless. Steps must be initiated to ascertain the location of the aircraft records and wherever possible copies of all the updated records of the aircraft must be procured.

  4. Typically, the lease documentation would allow the lessors to directly address letters to authorities such as the Airports Authority of India, Eurocontrol, etc. to obtain a statement of accounts of sums due by the lessee in respect of the aircraft. Letters must be addressed to all such authorities to get an update about the present situation.


It must be said that Jet Airways does not appear to be the only airline passing through a rough patch. Last week, India’s largest domestic carrier, IndiGo, reported its maiden quarterly loss since it went public, owing to higher jet fuel prices and a weak rupee. The entire aviation sector has been hit by rising fuel prices, depreciation of the rupee and rising debt service costs to fund aircraft purchases. While India’s Civil Aviation Minister has made it clear that private airlines have to deal with issues facing them on their own and the government’s role can only be at the policy level, he mentioned that the Civil Aviation Ministry is working to bring the aviation turbine fuel under the Goods and Services Tax (GST) regime, which may provide some relief to the airlines.

Can Jet Airways do a dramatic turnaround like Spicejet? One would hope so, for the sake of the stakeholders involved and their continued interest in staying invested in India’s aviation growth story. As for the present, it can be safely said that if there is an enforcement scenario, expedited action to repossess the aircraft will be key as multiple stakeholders go after the same assets.


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