The Story of Jet Airways Revival: In the last two months, the share price of Jet Airways moved from Rs 25 per share to Rs 64 per share. Seems like a great jump in prices, right? But what if I told you that the same company was trading at around Rs 800 per share in 2018. Now, that’s a big wealth destroyer. But can this wealth destroyer become a turnaround and build wealth for the investors. This is what we are going to discuss in this post.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing what went wrong with Jet Airways and Jet Airways revival story. Let’s get started.
What went wrong with Jet Airways?
After the failure of jet Airways that was once positioned to be the most valued and sought after airline in the Indian Aviation system, many observers and analysts have come up with varied theories explaining the reasons behind it. Once trading at a price of over Rs 870 per share in 2018, the stock traded even lower than Rs 20 per share by May 2020. Here is the probable list of issues that sparked the downfall of Jet Airways:
- An Expensive Purchase: The downfall of Jet Airways started right from the time when Naresh Goyal (Air India Founder) bought debt-ridden Air Sahara for a cash deal of $500 million. Many market analysts felt it was a very expensive buy. Jet Airways rebranded it as ‘Jet Lite’. But this new investment was continuously leaking money and it was completely written off in the year 2015.
- Budget Airlines: The main issue for Jet Airways started to happen with the introduction of budget Airlines in the Airline sector. It’s just could not match the pricing competitiveness of budget airlines. And, they had to slash the prices for their tickets that ultimately led to reduced revenues and losses. What jet airways failed to recognize is that the majority of the customers of airline sectors are price sensitive and services offered are the secondary factor.
- Lack of Vision: This has a lot to do with Naresh Goyal’s management style. He wanted to have centralized control of both full-service carriers and budget carriers. And which ultimately backfired as complete planning and focused management was missing in both places. And which ultimately led to bad management decisions and both businesses making losses.
Jet Airways Grounded in April 2019
After Kingfisher Airlines, Jet airways became the second airlines to suspend its operations because it ran out of cash, and banks were not willing to lend any more money. Amritsar to Mumbai was the last domestic flight of Jet Airways and since April 2019 and all the operations of Jet Airways have been completely suspended since then.
Impact on Share price of Jet Airways after being grounded
As seen from the share price chart below, the peak the share price of Jet Airways used to be around Rs. 800 levels. When the news of the airline suspending its operations hit the market, the share price fell from near Rs. 250 levels to around Rs. 20 levels. Almost 90% loss in the share price, within a span of one year.
Image: The share price of Jet Airways (source: www.portal.tradebrains.in)
However, recently, we witnessed a sudden surge in the price of Jet Airways, and its share price has gained the most this year, among many other airline companies globally. According to Bloomberg, the share price of the bankrupt airlines has jumped 130% this year, without flying even once this year. The global Bloomberg Airlines Index during the same time has slumped by 42%. So, why this sudden surge in the share price of once bankrupt airlines. What is the impetus? Let us try and find out.
Jet Airways Revival: Potential Buyers
Jet airways finally found buyers in 2020. The creditors of Jet Airways have approved a revival plan presented by a consortium of UK based Kalrock Capital and a UAE-based businessman Murari Lal Jalan.
Who are these bidders?
KALROCK is a global firm operating in financial advisory and alternative asset management, managing significant partners’ assets across a number of clearly defined and diversified strategies and single investments, with a focus on private markets.
According to many in the business world, Murari Lal Jalan is a very low-profile businessman and not many people have too much information about him. He started his career as a paper trader. In 2003, he went on to extend his paper business and acquired Kolkata-based Kanoi paper and Industries. He Renamed it Agio paper. However, in 2010, the paper companies faced a lawsuit from Government agencies for pollution-related issues and the operations have been suspended since then.
According to Newsfeed, “In 2015, he approached Dr. Naresh Trehan and Associates Health Services. He went on to acquire a stake in the company for Rs 75 crore, through a secondary share sale transaction. A secondary sale means that Jalan bought-out the shares from an existing stockholder. Around the same time as the acquisition, Dr. Trehan’s Medanta Hospital had plans to establish a hospital in Dubai, with the help of Jalan. Unfortunately, this plan was not implemented,”
He is now based out of Dubai and runs a construction business (MJ Developers) and has business in Brazil, Russia, and India. He also ventures in FMCG, Mining, and Real-estate business
Where is Jet Airways headed?
In the Jet Airways revival plan, the consortium has placed a bid of Rs. ,1000 crore to buy the ailing airlines. And on November 3, the consortium has deposited the performance security of approximately Rupees 150 crores. The investors will be getting 9.5 equity in Jet Airways, along with 7.5% equity in loyalty rewards company InterMiles. Now, Jet Airways will have to submit the resolution plan before NCLT. And one the resolution is passed by NCLT, the investors will get approval from the Ministry of Civil Aviation.
What remains to be seen is, how the money will be used to revive the fortunes of Jet airways. Will it be used to pay off the existing creditors or will the money be used to get back airline into the business of flying. Moreover, how the new buyers are planning to fight the exisiting big players like INDIGO and Spicejet is still unanswered. The road ahead is long and tuff. And in terms of share price, although the share prices have gone up fold fold this year, but it is only 10% of its peak in 2018 of nearly Rs. 800. Overall, although the company is on the path of revival, however, becoming a turnaround is still a long and difficult journey, especially being in the avaiation industry.
That’s all for today’s Market Forensics. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!!
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!