It’s the worlds fastest growing market: India. So how has JetAirways ended up grounding aircraft on such a scale, not paying its leases or its staff?
It financed most of its aircraft orders through debt. It’s credit rating was downgraded and the Indian Rupee – the currency it gets fares paid in, has fallen badly against the US Dollar. That’s the currency it’s fuel and leases are paid in, so it needs more money from fares to pay the same costs.
The Indian market is too competitive to raise fares so despite capacity and bums on seats being high, couple that to high costs as a full service airline, JetAirways is on a high road to nowhere. Its outgoings simply can’t be covered by its income.
The airlines lease companies and Boeing with whom it has a huge order book of aircraft it can’t pay for, all seem to be bending over backwards not to cancel orders or take back the aircraft.
There are two reasons for that. Indian law doesn’t recognise bankruptcy – the mess that would be left behind could tie up aircraft and payment claims for years, as Kingfisher’s demise a few years ago demonstrated.
Secondly if the airline restructuring works, it could still become a powerhouse of opportunity in a growth area.
In effect the suppliers are hedging their bets, hoping it all works out and JetAirways heads back to profit, at least break even, in the coming years. It won’t though, be as a full service carrier.
Boeing is hedging it’s bets more than the others. It would rather keep a customer, which after all has some 225 737 Max on order plus 6 787-9’s. And many of the leases already in use are through Boeing’s lease company.
But it’s not the end of the world if JetAirways fails, as Boeing would have little trouble finding new customers for either of the lost orders.
For the airline it’s now a question of can it last long enough to get through a restructure and refinance, before it’s simply has no choice but to stop flying through lack of operating cash.