What was once India’s most popular full-service airline is now struggling to stay afloat. The reins of Jet Airways, which is facing a debt of over $1 billion, now have been given to its lenders, led by State Bank of India. Its founder and chairman Naresh Goyal and his wife Anita stepped down from the board on Monday, paving the way for debt resolution.

The last few months have been extremely tough not only for the airline but also for passengers who chose to fly it. Non-payment of dues resulted in over 40 aircraft being grounded, leading to flight cancellations and soaring airfare. But with banks now taking over the airline and infusing money, are things starting to look up for the beleaguered airline and for passengers as well?

Here’s a lowdown on what led to the downfall of Jet Airways and what could be the way forward.

From being India’s largest international carrier to near bankruptcy

Naresh Goyal founded Jet Airways in 1993 with a fleet of four leased Boeing 737 aircraft. At a time when private airlines had just started coming up in India, Jet Airways, a full-service airline, grew fast to become India’s largest international carrier.

However, with budget airlines such as SpiceJet and Indigo entering the fray, the aviation industry became a highly competitive one. Calling themselves ‘budget’, SpiceJet and Indigo started offering low airfare, forcing Jet also to lower fares. But it continued to offer full services, increasing operational costs and forcing it to keep borrowing from banks to stay afloat. Macro-economic changes such as a weakening rupee and rising fuel costs only hurt it further.

In the first quarter of FY18, Jet posted its first quarterly loss of Rs 1,323 crore in at least 12 quarters. This was compared to a profit of Rs 53.50 crore in the same quarter a year ago. While it said that it was working on operational efficiency, the loss only widened with each passing quarter.

In August, it asked employees to take an up to 25 per cent cut in salaries as a part of cost-cutting measures. In September, it stopped offering free meals on economy class bookings. And in October, there were reports that the airline had laid off nearly 30 employees from departments such as engineering, security and sales and senior-level executives from the in-flight services department.

While Jet Airways enjoyed market leadership position with domestic passenger market share of 44% in 2003-04 and 27.7% around 2007, for February 2019, it dropped to the fourth place with 10% share behind IndiGo (43.4%), SpiceJet (13.7%) and Air India (domestic, 12.8%) as per DGCA data.

Unpaid dues and grounded flights

In December, it defaulted on loan repayment to banks, and soon began defaulting on payments to vendors and salaries were delayed too. As of March 2019, Jet owed banks Rs 8,414 crore. While banks were trying to work out a resolution plan with the airline, its lessors began repossessing aircraft due to unpaid dues.

Towards the end of February, Jet had cancelled over 300 flights for February and March as more flights started to get grounded.

Currently, over 50% aircraft of Jet’s fleet has been grounded. In fact, with Jet’s inability to pay back dues, the lessors even started offering these aircraft to SpiceJet.

Troubled by delayed salaries, pilots too decided to stop flying from April 1 if the airline did not come up with a rescue plan. Hundreds of them reportedly started looking for jobs in other airlines.

Etihad’s role

This is not the first time Jet Airways has faced massive debt. Back in 2013, when Jet had a debt of over $2 billion, it struck a deal with UAE-based airline Etihad, taking advantage of new policy changed that allowed foreign airlines to invest in domestic airlines.

Etihad picked up a 24% stake in Jet for around Rs 2,000 crore at the time, giving it two seats on Jet’s board. Etihad also got a majority stake in the Jet Privilege loyalty programme. However, reports suggest that since 2013, Etihad never really had a say in the functioning of the airline.

Fast forward to now – with Naresh Goyal pulling all strings to save his airline, he reached out to Etihad again. Early March, Etihad offered to give Rs 4,200 crore but put forward several conditions.

The agreement, which almost went through, would have seen Etihad bringing in a new investor who would invest around Rs 1,900 crore for a 20% stake. This would mean that Goyal and promotor group stake would fall. There was also a condition to cap their stake at 22%. The lenders, then, would infuse another Rs 1,000 crore. Etihad too, would invest funds and increase its holding to 24.9%.

Goyal, however, didn’t want promoter shareholder capping to be a part of the deal, following which the deal fell through. Goyal was back to having no backers. A desperate Goyal even reached out to the government seeking support to save the airline.

Banks step in, Goyal steps out

Till he stepped down, Goyal was trying all tricks of the trade to find his airline a strategic partner but to no avail.

On February 14, Jet Airways' board approved a Bank-Led Provisional Resolution Plan (BLPRP), according to which lenders would become the largest shareholders in the airline. However, this resolution plan would mean that Goyal would have to cede control of the airline, something he has been reluctant to do.

Several experts had been suggesting that Goyal’s exit was the key to Jet’s survival since any new investor, willing to come on board would want to take total control of the airline. In November 2018, when Tata’s offered to invest in Jet, the deal didn’t work out since they wanted full control, which would mean Goyal stepping down.  Something Goyal didn’t agree to.

However, given the immense financial pressure the company was under, Goyal agreed to step down from his position as banks took control of the airline.

What happens now

On March 25, the board of Jet approved a resolution plan put in place by the lenders under the guidelines of Reserve Bank of India’s ‘Revised Framework for Resolution of Stressed Assets’.

As part of the resolution plan, Naresh Goyal and his wife Anita Goyal stepped down from the board of the company. Naresh Goyal will also cease to be the chairman of the airline.

Lenders will now infuse funding support of Rs 1,500 crore by acquiring 51% stake in the company through the issuance of Rs 11.4 crore fresh shares. Goyal’s stake has now come down to 25%, while Etihad’s came down to 12%.

However, Etihad’s next move is yet to be known. It has not disclosed whether it wants to exit by selling its entire stake or if it wants to stay on board.

The lenders are also looking for a new investor – a process that they expect to complete in the June quarter. The bidding process is open and SBI chairman Rajnish Kumar told a TV channel that the new owner could be a financial investor or an airline – including Naresh Goyal himself or Etihad. Nobody is barred from bidding or taking over the airline as per the rule.

Are things finally looking up for Jet?

With Jet grounding over 40 aircraft due to non-payment of dues, SpiceJet grounding aircraft due to the Boeing 737 Max ban, travellers have been facing the brunt with airfares shooting up and flights frequently getting cancelled or delayed.

But the current management of Jet has reportedly assured the Civil Aviation Ministry that it would re-induct 40 flights into its fleet by the end of April and that it would not ground any more aircraft.

A total of 75 aircraft are envisaged by April-end, which is around 80% of the Jet's total aircraft previously.

This would mean that there will be more aircraft available, possibly ending the phase of sky-high airfares and unreliable flight schedules.