The rise and fall of India’s oldest private airline
Jet’s fall is a story of the fall of its founder. Few failures are so inseparable from their promoters.
Naresh Goyal, along with his financial advisers, drove to Deepak Parekh’s Mumbai residence to seek advice on how to save Jet. Around that time, the Tatas were evaluating the option of buying Goyal’s troubled carrier. There was also a private equity consortium led by TPG Capital and Indigo Partners LLC, a specialist aviation investor.
HDFC’s avuncular chairman Parekh — key adviser to the Abu Dhabi government, the same Emirate where Etihad, Jet’s partner, is the state-owned carrier — advised Goyal to step back and make way for a new investor.
Goyal has many such important friends on speed dial — politicians, policymakers, chief executives, airline lessors and manufacturers. He talks to them all, but finally listens only to himself. So he refused to relent or cede control last year, believing instead that he would pull a rabbit out of his hat, like always. But he couldn’t. Tata Sons, the only suitor with a comprehensive offer for Jet, walked off never to return.
ET spoke to multiple persons for this story. Many spoke off the record. A Jet spokesperson termed a detailed set of emailed queries sent earlier “speculative.” The Tata group said it won’t comment. Parekh too declined to comment.
“In retrospect, perhaps Goyal ought to have put more faith in the people he hired to help run the airline,” said Shukor Yusof, founder of Malaysian research firm Endau Analytics. “He does bear responsibility for many of the carrier’s strategic mistakes. He finds it hard to let go, and this has worsened the situation.”
“Goyal has failed his company, his employees and his shareholders,” a top airline executive told ET. “He had a readymade investment opportunity from Tata Sons, which he squandered. Jet was sailing till January. Then it all went downhill.”
By recent estimates, Jet Airways is making a daily loss of Rs 21 crore and has debt and dues of at least Rs 15,000 crore.
Jet’s fall is a story of the fall of its founder. Few business failures are so inseparable from the failings of their promoters. Industry insiders often quote a line attributed to Goyal, “I am the person in Jet. When people look at Jet Airways, they look at me.” The garrulous founder of the airline, admired by some for his quicksilver wit, was once its biggest asset. Today, he has proved to be its biggest liability.
Even with Etihad on board, Goyal repeatedly flirted with Delta Air Lines. With an FY18 net income of close to $4 billion, annual cash flows of over $7 billion and almost no presence in the big Indian market, Delta could have been Jet’s richest suitor. It offered Rs 300 per share. But Goyal wanted over Rs 400.
All this when his airline’s shares price had hovered between Rs 182 and Rs 347 for the past six months.
“Delta executives said, ‘Don’t just come to us for money. Come if you want us to help you turn around your airline’,” said the executive cited above. Delta declined to comment to ET.
POWER COUPLE’S DARBARS
Airlines have always had flamboyant founders/chief executives known as much for their love of the high life as for their hospitality. Goyal is no exception. He is self-admittedly inspired as much by CP Krishnan Nair of the Leela Palaces, Hotels and Resorts and PRS Oberoi of the Oberoi Group as by any successful airline CEO or founder. He wanted Jet’s Mumbai-London passengers to get a five-star hotel experience.
Goyal would hold meetings at his Mumbai and London homes and almost no one was allowed to leave without breaking bread with the family. When in London, the food would often come from Taj’s Bombay Brasserie, which also provided meals on Jet’s international flights.
Problems arose when Goyal blurred the personal with the professional. And when he fell totally out of sync with industry disruptions, feel his peers.
He would hold meetings that employees termed “darbars.” His room on the fifth floor of Siroya Centre, Jet’s corporate office in Mumbai, has a large round table with phones but no computers — Goyal, until recently, used fax, read printouts of emails and has joined WhatsApp in the past year, said a Jet executive. Facing this table are couches where executives sat.
Goyal would come into office post 1 pm, often summon heads of various departments, sermonise for hours and even take them to task publicly, caring little for designations such as head of planning and strategy. In Jet, Goyal was the sole planner and strategist. He liked to repeat things thrice for emphasis. His benchmark for efficiency was “like a Swiss clock” and he often cited Singapore Airlines and Lufthansa.
On the other hand, Goyal was also extremely emotional about his staff, showing reluctance and sadness in laying off almost any employee.
His wife Anita, also called Neeta, (a board member who resigned with him on March 25) held similar darbars one floor down. She was kinder, though just as exacting, and kept tabs on how much every Jet flight earned or lost. She was known to informally call up the heads of other airlines — Rahul Bhatia of IndiGo, Ajay Singh of SpiceJet and Jeh Wadia of GoAir (Naresh Goyal called chairman Nusli Wadia) — when they cut prices too much. Her associates called her sense of revenue management “reactive.”
Goyal and his wife would often differ on many aspects of the airline business but they agreed on one thing always: total control. At the end of 2018, for instance, when the cash crunch was deepening, Jet announced a slew of discounted offerings to fill its planes — a move that was objected to by CEO Vinay Dube.
An executive from Delta, Dube didn’t find the model sustainable for a full-service carrier already burdened by costs. However, Anita Goyal shot down Dube’s objection and asked him not to interfere, as it was “her airline.”
Numbers tell the rest of the story — those forward bookings gave the airline interim cash, but have now become a liability of Rs 3,500 crore worth of cancellations for around 3.2 million passengers. It has indeed been Dube who has kept the airline running in the past few months, pacifying angry creditors and encouraging distressed staff. Former executives say the Goyals’ biggest mistake has been placing too much trust in a handful of individuals.
There were “camps” close to Goyal and his wife. The company was “too personality-driven.” The couple frequently changed management decisions. For instance, the management would enforce additional duties on pilots or crew. But sometimes, a crew member would call up Goyal directly, and decisions would be overturned.
As Jet plunged financially, the darbars became infrequent, and stopped completely after September. But the Jet story isn’t just about Mr and Mrs Goyal. There was the son, Nivaan, too.
Nivaan was mentored at Jet by former chief executive Cramer Ball and then Jayaraj Shanmugam, currently executive vice-president of products and services. He worked with various departments before joining the business transformation team set up to turn around the airline and finally became a close aide of his father.
Former colleagues have said Nivaan never threw his weight around. Yet, many often found him detached. “Ball used to call assessment meetings with the top management. Nivaan would attend every meeting, but never said anything relevant,” said an executive who was part of these meetings.
Unlike his parents, Nivaan was more amenable to giving the management a free hand. Sometimes, he would be the ‘nicer’ Goyal when his father upbraided an executive. But his parents didn’t let him take any key decisions.
Following Goyal’s cardiac ailment, Nivaan asked his father to allow him, Anita and the management to run the airline. Even then, Naresh Goyal didn’t budge. A few weeks ago (around March 18), when Etihad said it didn’t want to be part of Jet’s revival plan, father and son flew to Qatar to give presentations to Qatar Airways’ global chief executive Akbar Al Baker. They weren’t able to garner interest. It was a sorry end to a great entrepreneurship story.
TAKE-OFF TO CRASH-LAND
The beginning of Goyal’s entrepreneurial journey — from a cashier at his uncle Charandas Ramlal’s travel company East-West Agencies to an independent general sales agent (GSA) building connections with airline executives across the world — has been told many times.
GSAs in the 1990s were powerful. They worked as international airlines’ representatives in the local market and were several notches higher in the pecking order than travel agents.
At its peak, Jet Air Transport’s office was aligned with 17 desks, each representing a different global airline.
Always a sharp networker, Goyal once took a visiting official from lobbying body International Air Transport Association (IATA) to Agra, and bought him and his team marble-topped furniture worth?5 lakh. Then, over lunch and subsequent cups of tea, he had a threehour discussion on buying some smaller aircraft. This was a strategy meeting minus corporate frills.
Jet started as an air taxi service operator in 1993 and went on to become India’s biggest airline, offering top-class international services. It started with a 20% equity partnership with Kuwait Airways and Gulf Air, both of whom exited later. Its overseas operations kicked off with a Chennai-Colombo route in 2004. Its successful initial public offer (IPO) was in 2005. Nothing was going wrong. But then, something big did.
Many observers argue that Jet’s financial problems started with Goyal buying out rival Air Sahara in 2007 for Rs 1,450 crore, This was a deal that gave Jet endless problems – financial, legal and human resource-related.
Goyal bought Sahara to take on Kingfisher Airlines and low-fare carriers Air Deccan, IndiGo and SpiceJet. But the deal reduced Jet’s ability to spend extra money to take on the competition effectively. Jet wasted IPO funds that remained after placing plane orders.
“After that, the smallest of bumps affected Jet more than its peers.
Over the years, it has depended more and more on external positive factors such as fares going up and fuel prices coming down,” another industry executive pointed out.
Kingfisher shut down operations in 2012. IndiGo quietly grew to topple Jet from its leadership position. Then came the second big mistake.
Goyal decided to buy a mixed fleet of 10 wide-bodied Airbus A330 and Boeing 777 planes. Mixing in such a small fleet was impractical as it increased cost of resources. Also, Goyal decided to configure them “like palaces,” building in only 308 seats, much lower than the global standard of about 400. He lost a fourth of the potential revenue in the process, executives said.
Even when the configuration changed to 348 seats, Goyal insisted on retaining eight first class seats long after it was proven that they were not earning anything. He didn’t listen to advice from his then commerce chief Sudheer Raghavan and longtime associate, CEO Nikos Kardassis. At 250 kg each, the seats added an unnecessary 8 tonne to aircraft weight that earned nothing for the flight. What’s more, there was never a proper network planned for the aircraft.
Since 2008, Jet had to lease out up to 70% of its wide-bodies to the likes of Turkish Airlines, Oman Air, Thai Airways, Gulf Air and Etihad. “Jet wasn’t a leasing company, but was forced to behave like one,” said one of the people cited above. “At least two executives from the top management used to travel for weeks every month in search of airlines that would take the aircraft on lease. It took up to six months to find an interested lessee. This, when fuel prices were rising, competition was getting brutal and the management should have focused on running the airline.”
AUSSIE FROM ABU DHABI
Jet faced its first serious financial distress in 2011-12. Goyal responded by pretty much single-handedly leading negotiations with Etihad, run by hardnosed Australian James Hogan. Close to 50 meetings later, Goyal managed to sell Etihad 24% for $379 million, a nearimpossible price given the precarious state Jet was in. But the miracle came at a price — Goyal soon saw his beloved company slipping out of his hands.
“Etihad’s entry was the first instance that filled him with fear of losing control,” recalls an executive. The Gulf carrier came in with 15 men and an aim to ‘professionalise’ Jet, though also to make a feeder airline of it. Weekly meetings with department heads were organised, routes changed, branding overhauled and cost discrepancies flagged.
But Goyal soon took back charge. The Etihad men left. Almost as a retaliatory move, Jet shifted its global hub to Amsterdam, from Brussels, and in November 2017, signed deep commercial agreements with the Air France-KLM combine. This was an opportunity Goyal had squandered in 2010 by wooing Star Alliance, a global airline group that chose Air India as its member instead.
Again, Goyal stitched together the new agreement almost single-handedly, with trusted lieutenant Gaurang Shetty. That was perhaps his last big win for Jet, the ultimate proof of his superlative networking skills.
Meanwhile, the fear of losing control had taken deep root. “In many meetings last year, when he took the top management to task for the airline losing money, he often ended the tirades with, ‘What should I do? Dilute stake in the airline that I have built? Exit?’” recalled a former executive who was present at many of those meetings.
Mistakes piled up as Goyal started to run the airline again. In 2013-14, Jet had the opportunity to offload all the costly A330-200s to several potential buyers, including Turkish Airlines. But Goyal bargained over the price and lost the deal.
Again in 2016, Jet had the opportunity to sell its entire ATR fleet, which was incurring an annual loss of over $100 million, to Etihad Regional or Air Serbia. And again, Goyal baulked. These lost opportunities returned to haunt Jet. Over the last 12 months, it has searched for and failed to find buyers for its Airbus A330s and ATRs.
From London last week, Goyal again bid for his airline after the lenders put it under the auctioneer’s hammer. His offer was rejected. In between, he continued to bicker with the lenders, saying they weren’t doing a proper job of reviving Jet. On multiple occasions in the past few months, potential investors Etihad and TPG threatened to walk out if Goyal remained at the airline. Ultimately, by the time the Goyals left Jet, it didn’t make a difference at all.
Naresh Goyal, who built an airline from nothing, left behind a lesson for entrepreneurs — no founder is bigger than the company he runs.
Mallya Sympathises with Goyals
LONDON: Erstwhile liquor tycoon Vijay Mallya on Wednesday took to social media once again, this time to express his solidarity with Jet Airways founder Naresh Goyal. “Even though Jet was a major competitor to Kingfisher at the time, I feel sorry to see such a large private airline on the brink of failure when government used Rs 35,000 crore of public funds to bail out Air India. Just being a PSU is no excuse for discrimination,” Mallya tweeted. “I have offered to pay back 100% but am being criminally charged instead. Airline Karma?” The UB Group chief expressed his sympathy for the troubles being faced by Goyal and his wife Neeta. “Even though we were fierce competitors, my sympathies go out to Naresh and Neeta Goyal, who built Jet Airways, that India should be extremely proud of. Fine airline providing vital connectivity and class service. Sad that so many airlines have bitten the dust in India. Why?” Mallya asked. - PTI