Jet's failure casts shadow over government

India’s Prime Minister Narendra Modi rode to power five years ago on his business-friendly credentials and the promise of generating millions of jobs. Now an airline is on the verge of collapse, bringing Modi’s image under attack just months before national elections.


Jet Airways is a major Indian international airline based in Mumbai. In October 2017, it was the second-largest airline in India after IndiGo with a 17.8 per cent passenger market share.

Incorporated in April 1992 as a limited liability company, the airline began operations as an air taxi operator in 1993. It began full-fledged operations in 1995 with international flights added in 2004. The airline went public in 2005 and in 2007, it acquired Air Sahara. It became the largest carrier by passenger market share in the country by 2010, a position it held until 2012.

On 24 April 2013, Jet announced that it was ready to sell a 24 per cent stake in the airline to Etihad for US$379 million. The deal which was expected to be signed in January 2013 was postponed and was completed on 12 November 2013. In November 2018, Jet Airways had been reported as facing a negative financial outlook due to increasing losses. Therefore, cost-cutting measures, as well as talks, have been initiated with potential investors or buyers.


Struggling in a competitive market where basic airfares can get as low as INR 150 (2 cents), Jet Airways India Ltd., the country’s second-biggest airline, has piled on $1.1 billion in debt and failed to pay loans and salaries. With about 23,000 jobs at stake, pressure is building on Modi for a rescue package as a collapse would mean bad optics in his re-election bid in a poll due by May 2019.

While Modi is not to blame for the unravelling of Jet Airways -- the airline was brought to its knees because of high fuel prices and intense competition -- his policies to make air travel affordable to more and more Indians didn’t help it either. The fate of the teetering carrier is now part of the opposition’s narrative that businesses are ailing, with the $2.6 trillion economy losing jobs on Modi’s watch.

The issue of jobs “is going to be at the forefront of the campaign,” said Manish Tewari, a spokesman for the main opposition, the Indian National Congress. "There has been gross mismanagement of the economy," Tewari said. "It is not surprising that even aviation and some of the airlines that have been doing very well in the past are now bleeding and haemorrhaging."

The ruling party argues that the failure of a corporate-like Jet Airways should not be linked to the government. Still, "if policy intervention is required, the government will be open to that," said Gopal Krishna Agarwal, a spokesman of the Modi’s Bharatiya Janata Party. "If it is a corporate failure, the government can’t intervene in every point of time."

As the crisis at Jet Airways unfolded last year, Modi’s government reached out to the salt-to-software Tata Group to help rescue the airline, people familiar with the matter said in November, an effort that later fizzled. While the Modi administration has maintained it won’t interfere in private businesses, history shows it has been difficult for Indian governments to stay away. Jet Airways' troubles are reminiscent of the now-defunct Kingfisher Airlines Ltd., which in 2011 defaulted on loan payments, airports and staff, forcing then Prime Minister Manmohan Singh to urge state-run banks to extend a helping hand.

State Bank of India, the country’s biggest lender by assets, is now at the forefront of a bailout deal being worked out as the carrier considers “various options on the debt-equity mix.” Lenders, led by SBI, have sought 35 billion rupees ($492 million) of investment from founder Naresh Goyal and Etihad Airways PJSC, which owns 24 per cent of the company, before they can revamp its debt, people with knowledge of the matter said last week.


Our assessment is that the failure of Jet Airways will be a blow to the NDA’s business-friendly campaign promises made in 2014 and expected to continue in the 2019 campaigning season as well. We believe that Etihad will be able to increase its take to 49 per cent after reservations from SBI and other primary lenders to Jet Airways.