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Here's Why Jet Airways is Cancelling Flights & Why One Shouldn't Rely On It Right Now

India's aviation industry is among the fastest growing worldwide and airlines like IndiGo and Spicejet have been posting positive financials for quite some time. 

The industry relies heavily on dynamic fuel prices and there was a slight dip at the end of 2018, but the phase was temporary. The market is extremely price-sensitive and the low-cost model has worked out well.

But the same can't be said for Jet Airways, India's oldest private airline. It celebrated 25 years of operations in 2018 but has barely managed to post a profit all this time. The airline is a full-service carrier and competes against Vistara and Air India. The industry has slim margins and full-service airlines are having a hard time going up against their low-cost competitors. Vistara is a Tata-Singapore Airlines joint venture and Air India has taxpayers, but who is looking after Jet?

Here's Why Jet Airways is Cancelling Flights© Utkarsh Thakkar / @vimanspotter

Jet Airways is reeling under a debt of over Rs 8,000 crore and has been defaulting on loan repayment and interest thereof. The crises started brewing from the second half of 2018 when it announced the need for an urgent bailout. 

In simple terms, the airline has no money left and has a huge debt to cover up. Adding to this, the current investors of the airline are not capable or keen on putting in more money.

The airline has grounded a total of 60 aircraft out of 119 and is operating with half its fleet. This is because it doesn't technically own all the planes and leases them out from companies like GECAS. Since the airline has no cash, it cannot pay the lessors, and in turn, the lessors have grounded the equipment.

Here's Why Jet Airways is Cancelling Flights© Utkarsh Thakkar / @vimanspotter

Jet used to operate more than 4,000 flights every day but is now down to 900. Brand new aircrafts like the MAX 8 have been grounded for weeks and the airline has more than 200 of them on order. Boeing has also stopped delivering new aircrafts to the airline.

This has lead to large scale cancellation of flights from important cities like New Delhi, Bengaluru, and Mumbai. The airline says the cancellation is to improve operational efficiency and it is accommodating passengers on other flights or refunding them in full. But, last moment cancellations mean the passenger cannot book a flight on another airline for the same price.

Here's Why Jet Airways is Cancelling Flights© Utkarsh Thakkar / @vimanspotter

The current investors include the promoter Naresh Goyal, Etihad Airways (UAE), and shareholders. A bailout plan has been in the works for months and an SBI-led banking consortium has agreed to pump in more money in return of equity. This would mean that Goyal's 51 per cent share shall be diluted down and Etihad has the option of either putting in more money to maintain its stake or get diluted as well.

Initially, Etihad was expected to provide a small lifeline to the airline but the company is now looking to back out and sell its share. This means a new investor needs to come and not only purchase Etihad's holding but also further pump money into the airline. Goyal is a majority stakeholder and has failed to bring in a new investor. There have been reports that the Tata Group was also analysing an investment option but the deal couldn't materialize.

Here's Why Jet Airways is Cancelling Flights© Utkarsh Thakkar / @vimanspotter

The government has asked state-run banks to rescue the private airline according to Reuters. Even if banks bailout Jet, the airline will be classified as a Non-Performing Asset (NPA) since it hasn't paid its dues for more than 90 days. This eventually will be a challenge for the banks who are desperately trying to fend off NPA's and improve their portfolio.

Meanwhile, dissatisfied employees are protesting against the airline over pending salary. Pilots at the airline have threatened to go on strike starting April 1 if Goyal fails to come up with a resolution plan. DGCA has asked Jet Airways' pilots, cabin crew and ground staff who have reported any kind of stress to not report for duty.

Here's Why Jet Airways is Cancelling Flights© Utkarsh Thakkar / @vimanspotter

Taking advantage of the situation at Jet, rival airlines who are facing pilot shortage are asking employees to jump ship. Even the aircraft lessors have offered 50 of the airlines' new generation Boeing 737 aircraft to budget carrier SpiceJet. Following the MAX 8 grounding, Spicejet is trying to normalize its operations and is in need of aircrafts immediately.

Jet needs a bailout immediately and the government cannot afford to have a Kingfisher-like landing in an election year. Experts have been blaming Goyal's reluctance of reducing his share and leaving executive control of the company.

Here's Why Jet Airways is Cancelling Flights© Reuters

Airfares are expected to rise in the coming months since Jet had a major load carrying capacity and the supply of seats has reduced. Spicejet is also in a pickle due to 13 grounded MAX 8 aircraft

We suggest that our readers take caution when booking a flight on Jet Airways till the airline is able to figure out a solid restructuring plan.

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