Jet Airways grounds 10 more aircraft; cancels international flights

Lauren Eldershaw
By Lauren Eldershaw April 12, 2019 13:17

Jet Airways grounds 10 more aircraft; cancels international flights

Jet Airways grounded a further ten aircraft on April 11, and appears to have suspended all its international flights, which is unsurprising since the airline is only operating 14 aircraft. Indian carriers must operate a fleet of more than 20 aircraft to fly internationally.

Singapore’s Changi Airport confirmed that Jet Airways had “suspended its services to and from Singapore until further notice”, while London Heathrow has confirmed that Jet Airways’ flights to Mumbai and Delhi today will not operate.

According to report, the consortium of lenders led by SBI have started accepting bids from potential investors, but all the signs are that Jet Airways does not have the financial capital to continue to operate.

Meanwhile, SpiceJet announced today that it is inducting 16 Boeing 737-800NGs on dry lease into its fleet and has applied to the Directorate General of Civil Aviation (DCGA) for a No Objections Certificate (NOC) to import the aircraft. Subject to approvals, the aircraft will begin joining the SpiceJet fleet in the next ten days.

Ajay Singh, chairman and managing director of SpiceJet said: This is the first lot of Boeing 737s that we are inducting in our fleet. The sudden reduction of aviation capacity has created a challenging environment in the sector. SpiceJet is committed to working closely with the government authorities to augment capacity and minimise passenger inconvenience.”

SpiceJet says that the new inductions will bring down flight cancellations to nil while also helping its international and domestic expansion plans.

It doesn’t say so in the release, but the aircraft are almost certainly from lessors that have pulled their aircraft out of Jet Airways in recent months. Moving to an Indian carrier means that the aircraft do not have to be deregistered from India, which assists the lessors in keep replacement costs down.

Also in India, it has been revealed that Tata Sons Ltd and Singapore Airlines Ltd have infused a combined INR900 crore (approx.. $130 million) in Vistara with two rights issues in December 2018 and March 2019. The cash is required to fund new aircraft deliveries and to strengthen its current financial position. Tata Sons will purchase 255 million equity shares of Tata SIA Airlines at INR10 each, while Singapore Airlines will buy 245 million shares, reports MINT.

In China, Reuters is reporting that Hong Kong Airlines is facing difficulties. The news services writes in an exclusive report that the shareholders of the airline are asking to view the 2018 accounts before considering providing at least HK$2 billion ($255 million) requested by the airline, which is needs to retain its license. Hong Kong’s Air Transport Licensing Authority (ATLA) demanded the airline to improve finances. Reuters reports that the airline losses reached HK$3bn last year. The airline has not publicly confirmed the Reuters report.

As Hong Kong Airlines sits on the brink of collapse, we have to wonder what the mandatory opening up of the accounts will reveal. Is the airline being propped-up by stakeholders and are the operating losses far worse than they seem? Either way the airline is in trouble.

A few months ago I had the silly idea of adding tailfins of lost airlines over the past few months to the cover of Airline Economics, since then the cover has been changed three times as logos have been added. This is not a rout of airline brands – what we are seeing out there at the moment is a shakeout of the shabby business models that were never going to make it. Airlines that have been in trouble for some time. FlyBe in the UK is the exception. I have to ask: how did it come to this?

Then we have Jet Airways. The moment Etihad pulled its cash support, it was clear the airline was running down the clock. The business model has always been questionable, it is very much like Kingfisher in so many ways. We called out the weakness of the business model right here 12 years ago, but when Etihad pilled-in as part of its deranged global invest-in-anything-close-to-collapse scheme, the airline was given a reprieve and a seemingly powerful international partner for global connections. During that period of reprieve, the airline management could have restructured the airline. It could have deployed those Investec and Aergo ATRs as Air Deccan once did, keeping the frequency and therefore the slots but cutting capacity to fill the aircraft and turn a profit; and in the process off-load the larger jet aircraft, which were so obviously running at a loss. Jet deployed the ATRs but kept the larger lossmaking aircraft flying, in effect the airline did nothing to cut its cost base even though it was losing money – such a model seems nonsensical. Now all lessors have a stark choice – try and offload the Jet aircraft to SpiceJet or the like and keep the India risk, or deregister the aircraft and try to get them back out of India before Jet completely folds. If in that scenario Jet collapses before the aircraft are out of India, the lessors will have the awful trouble getting them out. If during that time Jet receives a financial reprieve then the aircraft have a good chance of getting back to lessors intact. It is a gamble either way.

Vistara has had to have a cash injection; GoAir has seen extreme pressure on margins; even the mighty IndiGo has seen pressure on margins. The Indian market is tough and a high risk country for lessors, it always has been and will be until bureaucracy is cut and that will take a strong government willing to completely reorganise the regional state system and its powers over aviation and airfields. The Indian government should move to federalise all aspects of aviation at speed, but alas this is not on the horizon. What we are seeing is continued cash injections into Air India, which continues to stifle competition across the Indian market. I wonder just how strong SpiceJet can be at this time. Can SpiceJet really take on all of those 737s this month and turn a profit on them? If at any time there is a mention of “taking up the slack left behind from Jet Airways” then do not believe the story as at no time were those Jet Airways aircraft full and at no time were the ticket prices achieved high enough to cover the running costs. SpiceJet has the cash right now but what has changed with regard to its business model over the past five years? Take a closer look. With these new 737 aircraft, any changes for the better have been totally erased and the model is going right back to that of some five years ago. Once the investors have had enough of seeing their cash go up in smoke, they too will pull the plug. As things stand it is a question of not if, but when.

There is some good news this week, however, in the shape of JetBlue, one of the best airline models in the world. The announcement of Heathrow to NYC flights this week is great news and the airline should be able to make this pay. I would argue though that they would be far better off connecting to Manchester in the UK where they can link-up with Emirates and Etihad far more easily and cheaply to fill flights. People seem to forget that Manchester has a local population within 1.5 hours of some 7 million and Delta, United and American all charge a premium on flights from the airfield due to the lack of competition and frequency. IAG saw this and has been filling transatlantic Aer Lingus flights from Manchester to Dublin for years now. JetBlue could come in and raise its prices and still be half the cost of Delta and United and faster than Aer Lingus (due to the Dublin stopover). Now that is worth thinking about. Norwegian has certainly missed a trick there that has cost it dear.

Lauren Eldershaw
By Lauren Eldershaw April 12, 2019 13:17