Indian airlines are not exactly in the best of the shape these days. We already know the bad state that Air India is in and now with the recent news of Jet Airways, it only shows the bleak state the industry is in.
For some time now, Jet Airways has been in the news less due to its excellent service and more for its big debts that its collected over the years.
Apparently, as per sources, Jet Airways been consistently losing money and has acquired a debt of almost 1 billion dollars, that amount to about Rs. 72.99 billion.
For a while now, it has been defaulting on loans and even delayed the salaries to their staff and lessors.
But with this new deal, a group of lenders from the State Bank of India will be buying out about 50.1% of the stake in the airline for just 1 rupee.
Why Is This So?
It was reported that on 14th February, Jet Airways’ board had approved a BLPRP (Bank-Led Provisional Resolution Plan) where a part of the debt would be turned over into about 11.4 crore shares, which lenders would buy at Rs. 1 per share according to RBI rules.
This would automatically make the lenders the biggest shareholder in the airline and the current owner Naresh Goyal would have about 19% of the stakes.
The arrangement’s final vote will be taken on 21st February where all the lenders, a banking industry group, founder Goyal and the board of Etihad will need to approve of it.
Jet Airways will then get about Rs 85 billion to recover its loses and get back on it’s feet. Furthermore, the temporary nature of this arrangement will also allow a change in shareholder pattern down the line.
Why Was Jet Airways In Debt?
Mostly, it was just a lot of different factors which led to its downfall, starting from an increased competition.
Around the 2000s, more and more airlines started to come into the market, which were a competition to JA’s budget plan. These airlines offered much more cheaper tickets, more flights and that too on time, without many facilities.
It was a good way for those who just want to get from point A to point B without wanting to spend a lot of money on a plane ticket.
To combat this, Jet Airways started to drop their ticket cost to extreme degrees, which was not only bad for business but pair it with the 30% provincial tax on jet fuel did not bode well for them.
Apart from that, seeing how the airline was a full service one, meaning it provided things like in-flight meals and entertainment for free, it did not allow for them to recover their costs as well as they had hoped.
Hopefully this move might work to stabilise the airline and give them some time to recover their debt and become profitable once again.
Image Credits: Google
Find the blogger @chirali_08