Two grounded airlines in 10 years cast doubt on India boom

Bloomberg

Jet Airways India Ltd, the second local carrier to ground its entire fleet in the past decade, is casting a shadow on India’s booming aviation sector.
Once the nation’s biggest airline by market value, Jet Airways’ shares nosedived by a record 31 percent in Mumbai after saying it would suspend operations on a “temporary” basis as it ran out of money.
A severe cash crunch had pushed Vijay Mallya’s indebted Kingfisher Airlines Ltd to ground its planes in 2012. It never flew again and Mallya is still fighting his extradition to India from London.
India’s aviation sector is an investment conundrum: it’s the world’s fastest-growing aviation market that has seen 54 consecutive months of double-digit percentage passenger growth and yet it’s notoriously difficult to make money in.
As Jet Airways’ lenders race to find an investor for the debt-ravaged airline, suitors will weigh the sector’s prospects against India’s high jet-fuel prices and a crushing fare war worsened by the entry of no-frills carriers.
“It’s a terrible setback for the entire industry. This makes the whole aviation story look doubtful,” said Parvez Damania, a Mumbai-based aviation expert. “Grounding of Jet Airways has impacted the credibility of double-digit growth of Indian civil aviation.”
The crisis at Jet Airways that risks 23,000 jobs, has come at an exceptionally sensitive time for Prime Minister Narendra Modi who’s seeking re-election in ongoing national elections, amid concerns on rising unemployment. The Modi administration has in the past few years cracked down hard on India’s delinquent borrowers to repair the books of banks that currently have the world’s worst soured loan ratio.
“Since no emergency funding from the lenders or any other source is forthcoming, the airline will not be able to pay for fuel or other critical services to keep the operations going,” the carrier said.
The carrier added that the decision was taken after a painstaking evaluation of all alternatives, with the ministries of civil aviation and finance and the aviation safety regulator informed in advance.
It’ll continue to support a bid process initiated by lenders and that it aims to return to flying “as soon as possible.”
That mechanism is due to conclude on May 10.
‘Reasonably Hopeful’
State Bank of India, on behalf of all Jet’s lenders, said in a statement that they had decided that “the best way forward for the survival of the carrier is to get the binding bids from potential investors” who were interested. Lenders are “reasonably hopeful” that the bid process is likely to be successful in determining a fair value for the carrier, it said.
Lenders have asked the government to protect Jet’s prime airport slots to prevent an erosion of its value, Business Standard reported, citing sources it didn’t name.
The banks are said to have shortlisted Etihad Airways PJSC, India’s National Investment and Infrastructure Fund and private equity firms TPG Capital and Indigo Partners, people familiar with the discussions said.
Air fares are expected to rise in the coming weeks, possibly denting the passenger growth story that was making India the world’s quickest-growing aviation market. Jet’s decision to stop flying will also push the fares higher.