Following the long-anticipated news earlier this week that Jet Airways would cease operations, Simple Flying takes a retrospective look at the cause of the airline’s struggles. From a huge Boeing order to missed loan payments, a whole host of reasons contributed to the airline’s demise.
Huge Boeing order
Arguably, Jet Airline’s troubles began when the airline made a huge aircraft order. At 2018’s Farnborough Airshow, the airline ordered 75 Boeing 737 MAX aircraft at a list price of USD $8.8 billion. These orders joined another 150 Boeing 737 MAX aircraft on order.
Of course, aircraft don’t come cheaply, especially when you have ordered 225. Jet Airways relied on lease agreements with aircraft leasing companies. These companies act as a middle man between the manufacturer and the airline. In effect, the lessor buys the aircraft and leases it to the carrier. In this context, dry leases are offered, meaning only the aircraft is provided.
Missed loan payments
Jet Airways took loans out to help cover payments it needed to make. At one point it was forced to ask its creditors if it could delay repaying these loans. At the same time as they were seeking a moratorium on these loans, the airline sought fresh cash from banks.
All of this eventually led to Jet Airways missing a loan payment on the 31st of December. The airline reported that the payments were “delayed due to temporary cashflow mismatch”. The delayed payment has some more severe consequences for the airline, as their credit rating was lowered to D.
Jet Airways was eventually forced to decide where the money it had was most urgently needed. While many members of staff missed pay, it seems as though unpaid aircraft lease debts began to rise.
As a result of missed lease payments, aircraft lessors began to take action. This included grounding their aircraft in the first instance. When further payments were missed, the aircraft owners began to deregister the aircraft meaning Jet Airways would not be able to fly them.
This caused a slippery slope effect for the struggling carrier. They needed to generate more money to get their lease payments up to date. However, with less aircraft flying, the airline was generating less money, as fewer flights were operating. This, in turn, meant that more aircraft were grounded.
The final nail
The final nail in Jet Airway’s coffin came on Wednesday. The airline announced that all operations would be suspended. This was due to the airline being unable to purchase items essential for aircraft operation such as fuel. The airline even issued a statement saying “the airline will not be able to pay for fuel or other critical services”.
What do you make of Jet Airways’ demise? Let us know in the comments down below!