Stakeholders were waiting with bated breath to see if a bid for Jet Airways comes through. The bids that have come in are highly conditional, inadequate, and less than desirable. The situation is bleak, and worsening.

Share Market Live

NSE

The revival of Jet Airways requires not just a large cash infusion but also a major restructuring of the airline, and may be even the civil aviation policy. The challenges are immense but not insurmountable. The challenges any potential reviver of Jet faces are akin to starting a new airline. Given the amount of money and effort required, why not start a new one, you may ask. It is just the significantly additional time needed to start a new airline.

For reasons best known to them, banks seem to be hell-bent on chasing Etihad Airways as a saviour. They overlook the fact that, with over $4 billion in recent losses and a bleak outlook, the weakest of the Gulf carriers competes with Air India and other south-Asian state-owned airlines as the poster-child of how not to run an airline.

In my humble opinion, apart from looking at the cash, lenders should evaluate potential revivers of Jet Airways on the following seven criteria.

Competent and empowered leadership with a clear mandate

Restructuring and turnarounds require a very different skill set. Any effort to revive Jet needs tough decisions, along with the ability to butt heads with all stakeholders. Areas includes re-positioning, strategy, judicious asset disposal, retrenchment, and most likely lawsuits. Decisions cannot be second and third and fourth-guessed. Is the bidder bringing leadership that is competent, empowered with a clear mandate, and unfettered to execute?

A clearly defined vision

Any bidder must clearly define a strategic vision for Jet Airways; in the short-term, medium-term and long term. With budget carriers carrying almost 70 percent of all domestic traffic, the strategy has to define a niche in which the new avatar of Jet can succeed. This may include getting out of the existing premium carrier positioning. Jet can no longer be all things to all people. The vision must highlight areas to exit from, focus on a defined core business and compete towards profitable and sustainable growth.

Aggressively attacking the cost structure

Jet Airways was too complex an operation. A fleet of 119 planes, numerous sub-types of aircraft, network design, and 16,000 plus employees, many of them paid well above industry standard. Complexity results in costs, and in a price-sensitive India, it erodes competitiveness. The revived Jet will have to be a simpler, leaner and much meaner organisation. This will not be a pleasant exercise, blood will flow, but it is critical to survival and eventual success. Does the bidder’s vision point to this critical ability?

Redesigning and revamping the network

The new management at Jet will need to operate with a severely pruned network. The network is the heart of any airline, but the new management at Jet many not have the resources, or desire, to operate the previously large and complex network. Furthermore the new management would most likely opt for a point-to-point structure to reduce costs. How is the new management’s vision account the pruned network? Does the bidder show the vision to use Jet’s in-house talent to constantly re-adjust the network capacity dynamically to best utilise limited resources like aircraft, slots, demand, route dispersal guidelines, etc.?

Reclaiming lost assets

Under the guise of consumer protection, the government has not followed its own 'guidelines' (there is no official policy), and has 'temporarily' distributed Jet’s most prized assets, its slots and routes, to competitors. Taking these back is akin to taking a juicy bone from the jaws of a hungry dog. Even if the government is able to achieve this, how is the bidder planning to re-claim lost assets? Apart from slots and routes, much of Jet's narrow-body fleet are de-registered, and operating with competitors. How is the bidder planning to re-stock the fleet? Not having these assets makes buying liability senseless. One might as well start a new airline with a clean slate.

Cash, cash, cash

With a constrained financial environment, suspicious lenders, and a weak balance sheet, the new management at Jet will have to put an inordinate amount of focus on items that generate cash and conserve what little cash is left. Renegotiation and establishment of new credit lines will be an extremely challenging task. How does the bidder’s vision ensure Jet does not run out a second time?

Maximising existing resources

Without a doubt, the staff of Jet Airways have shown their commitment and loyalty. Showing up for work, facing irate customers while their own lives were on fire, the employees have earned the respect of the general populace. The crisis has brought the team closer. Ironically, for the very survival of Jet, it is these very employees who will bear the brunt of cost-cutting. The management team has their task cut out. How does the bidder plan to harness this loyalty to ensure maximum performance ? How will the new Jet bring back its still loyal customer base? Corporate culture leads to corporate reputation, and a great reputation is a source of incalculable competitive advantage. Just ask the Tatas.

Summary

Any investor will have to focus on these seven points which are key to the turnaround of Jet Airways . Funding is just the initial hurdle, it is post-funding that will determine whether Jet 2.0 will grow, survive and thrive. It’s the area lenders simply cannot afford to ignore. Today it might be a haircut, tomorrow will be a clean shave.

Devesh Agarwal is the editor of BangaloreAviation.com. He is ranked 6th on Mashable's list of aviation pros on Twitter @BLRAviation. He is an elite level frequent flier with both Jet Airways and American Airlines, and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

First Published:May 17, 2019 12:25 PM IST