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Jet Airways

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Jet Airways
File:JetAirwaysLogo.gif
IATA ICAO Callsign
9W JAI JET AIRWAYS
Founded1993
HubsChatrapati Shivaji International Airport
Focus cities
Frequent-flyer programJet Privilege
Fleet size58
Destinations44 Domestic
5 International
HeadquartersMumbai
Key peopleNaresh Goyal, founder and chairman
Websitehttp://www.jetairways.com

Jet Airways is an airline based in India serving domestic and international routes. The airline operates over 320 flights to 44 destinations across the country and 5 overseas, with the majority of flights operated from Chhatrapati Shivaji International Airport, Mumbai and Indira Gandhi International Airport ,New Delhi. It currently controls about 32% of India's aviation market.[1]

Background

Jet Airways was incorporated as an "air taxi" operator in 1992. It commenced commercial airline operations on 3 May 1993 with a fleet of 4 Boeing 737-300 aircraft, with 24 daily flights serving 12 destinations.

In 1991, the late P.V. Narasimha Rao, Prime Minister of India at the time, introduced an "open skies" policy as part of India's economic liberalisation. This opened doors for privately owned "air taxi" operators to start scheduled services. Initially these "air taxis" were not allowed to publish their schedules thus putting them at a considerable economic disadvantage vis-a-vis Indian Airlines, then the monopoly provider of all domestic air transport in India. Naresh Goyal, who already owned Jetair (Private) Limited which provided sales and marketing for foreign airlines in India, took advantage of this opportunity to branch out into the airline business by setting up Jet Airways as a "top notch" value-for-money full service scheduled airline that would give wholly state-owned Indian Airlines a good run for its money. (Indian Airlines had enjoyed a total monopoly in the domestic market between 1953 when all major Indian air transport providers were nationalised and the early 1990s when the Indian Parliament repealed the "Airways Corporation Act", which had been the legal basis for nationalising various privately owned Indian air transport providers at the time.)

Brand ownership

As far as Jet Airways' internal commercial arrangements are concerned, it is of particular interest to note that the airline does not own its brand. The Jet Airways brand is actually owned by Jetair Enterprises Ltd., a separate company substantially owned by Naresh Goyal, which licenses the brand to the airline in return for a specified annual payment made to it by the airline. This arrangement is very similar to the terms governing the use of the "easy" brand by the easyJet Airline Company Limited (the name under which easyJet has been incorporated). Under the afore-said arrangement, Sir Stelios Haji-Ioannou, the founder and largest individual shareholder of easyJet Airline Co. Ltd. has sole ownership of the "easy" brand and licenses it to that airline for a specified payment. This kind of arrangement is of vital importance should the concerned airlines become the subject of a hostile takeover bid because the bidder[s] will not automatically acquire ownership of their takeover target's brand and without access to the brand the takeover target will be worthless.

Operations

Its 45 destinations include most of the big cities in India. International destinations include Kathmandu, Colombo, Singapore, Kuala Lumpur and London's Heathrow Airport. Jet Airways was the first private airline in India to fly to international destinations. It commenced international operations in March 2004 between Chennai and Colombo after it had been cleared by the Government of India to operate regular, year-round scheduled services to international destinations located within all SAARC countries other than Pakistan. (The reason the Government of India withheld permission for privately owned Indian air carriers to fly to Pakistan was that there was no commercial insurance available that these airlines could have afforded. Furthermore, the Government of India was unwilling to extend insurance cover it was providing to both Air-India and Indian Airlines for their operations to/from Pakistan as well as through Pakistani air space to wholly privately owned carriers.)


Subsequently, a second route linking Mumbai with Colombo and a new route between Delhi and Kathmandu were added. The latter commenced in May 2004. On December 29, 2004 the Government of India decided in principle to permit privately owned Indian carriers to operate scheduled air services to any international destination world-wide (outside of Pakistan) with the exception of the Gulf countries, i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, for a duration of three years from the date of implementation of the new policy, provided that they had at least five years' continuous commercial airline experience and that their fleet numbered at least 20 aircraft in the "large transport category".


The decision to specifically exclude privately owned carriers from flying to any destination in the Gulf countries for three years was an important concession to both Air-India and Indian Airlines, India's two wholly government-owned "flag carriers", for both of which these countries collectively constitute the largest overseas market (in terms of passengers carried) as well as an important revenue generator and source of profits. This decision, which became a central plank of the Government of India's new aviation policy and was officially announced at the beginning of 2005, also became the legal basis for Jet Airways' on-going international expansion beyond SAARC.


Another important "side-effect" of this stipulation was that apart from Jet Airways itself Air Sahara was the only other privately owned Indian carrier permitted to operate international scheduled services. (It is fair to assume that the Government of India's intention behind this restriction was to ensure that no commercially inexperienced, financially weak upstarts would be allowed to operate internationally only to collapse at the slightest hint of a market downturn and in the process leave thousands of air travellers holding Indian passports stranded abroad whom the Government of India would be obliged to repatriate to India at Indian taxpayers' expense).


Initially, Jet Airways sought to take maximum advantage of this ruling by adding new international scheduled routes to destinations within the commercially viable flying range of its growing fleet of "Next Generation" Boeing 737-700/800 series narrowbodied jets, such as Singapore and Kuala Lumpur. A couple of 737NGs equipped with winglets for greater fuel efficiency, improved range and reduced engine "wear-and-tear" were specifically ordered and subsequently joined the company's fleet to serve these destinations. However, the airline also realised that for routes beyond 5 1/2 hrs non-stop flight duration, i.e. to North/Northeast Asia, Australia and most of Africa as well as Europe and North America, it needed something different than the 737.


This first led to a decision to lease three Airbus A340-300E widebodies from South African Airways to enable it to commence non-stop flights to London Heathrow in the UK and to subsequently place a large order for a fleet of brand-new Airbus A330-200 and Boeing 777-300ER widebodied airliners to permit further expansion, especially to additional destinations in Europe and North America.


At present (2006) Jet Airways has international services to Kathmandu, Colombo, Singapore, Kuala Lumpur, London Heathrow, operating from Mumbai, Delhi, Chennai and Amritsar.

Jet Airways Airbus A340-300 waiting for take off at London Heathrow Airport


Jet Airways and Air Sahara were the only private airlines to survive the Indian business downturn of the early 1990s. On January 19, 2006 Jet Airways announced that it would buy Air Sahara making it the biggest takeover in Indian aviation history. The resulting airline would have been the country's largest[1] but the deal fell through in June 2006.


Jet Airways has begun thrice-weekly operations from the north Indian city of Amritsar to London Heathrow. Jet Airways began serving Amritsar on 4th August, 2006. The service will operate three times a week from Friday-Sunday using the airline's recently delivered Airbus A330-200.


Interestingly, Jet Airways stated in its latest published annual report covering the 2005/6 financial year that its domestic operation still accounted for the bulk of its profits in spite of increased competition from rapidly expanding low cost carrier Air Deccan and several other recent start-ups, which has resulted in Jet Airways domestic market share declining to below 40%. (Lower wages in India compared with the West are not the only explanation for Jet Airways' relatively low cost base by international standards. The company has also been able to lower its costs by "sweating its assets", i.e. getting the maximum utilisation out of its aircraft fleet by minimising turnaround times between flights, similar to the leading European/North American low-cost, "no frills" carriers. This has partly helped it to offset the high costs of the airport infrastructure as well as jet fuel in India, which are higher in India than the international average.)


It also claimed that its international operations were all profitable, with the sole exception of its long-haul flights between India and London-Heathrow. Analysts attribute the losses the airline has incurred on its UK routes to the fact that these services are still in the "start-up" phase when most airlines lose money on a new route, the industry average being about three years of start-up losses for any new route (among the major industry players only Emirates seems to manage to break-even within six months of starting a new route). They furthermore attribute the company's losses on the UK routes to the fact that the Jet Airways brand is still relatively unknown in the UK vis-a-vis the big, established carriers such as British Airways, Virgin Atlantic, bmi, Emirates etc., especially among UK-based corporate business travellers who account for the bulk of all premium travel between India and the UK and who are the airlines' most profitable customers.


Moreover, Jet Airways also faces stiff competiton from the aforesaid carriers in the non-premium market segments, in particular as far as the UK's large ethnic Indian VFR (=visiting friends and relations) market is concerned. Many of these travellers do not stay within Heathrow's immediate catchment area, the only UK region so far covered by Jet Airways. These travellers prefer travelling from other major UK airports that are located closer to where they actually live, i.e. Gatwick, Manchester, Birmingham, Glasgow etc., most of which are served by other carriers that can offer competitively priced and relatively convenient connections from these airports via their hubs to India (e.g. Emirates via Dubai or KLM via Amsterdam-Schiphol). Other factors that have undoubtedly contributed to the losses incurred on the UK routes as well include the high price of aviation turbine fuel (ATF) as well as the relatively fuel-thirsty, four-engined A340-300E aircraft which operate almost all of the airline's current services between India and the UK.


Jet Airways should be able to take maximum advantage of the greater fuel efficiency of its twin-engined fleet of A330s and B777s (compared with the A340) once these have been delivered in sufficient numbers to the airline to be deployed on its UK and other planned long-haul schedules. This will hopefully help improve those routes' financial performance barring another major spike in ATF prices.


Controversies

It took Jet Airways more than two years to get the necessary clearances from US authorities to fly to the United States. The US State Department gave the go ahead on November 15, 2006.

Jet was expected to begin service to Newark via Brussels in June 2005 but a problem arose in March 2005, when the airline submitted an application to the U.S. Department of Transportation. Nancy Heckerman, CEO of US company Jet Airways Inc. based in Bethesda, Maryland, opposed the application in letters to the Transportation Department alleging trademark infringement. Though the litigation is still unresolved, the Department of Transportation concluded it was not a reason to prevent Jet from flying to the U.S.


A second and more serious allegation that delayed Jet Airways being permitted to fly to the USA focuses on its opaque ownership structure as well as its alleged links to organised crime in India and abroad. Jet Airways was originally set up as a subsidiary of Tailwinds, an Isle of Man based holding company designed as a tax shelter, whose sole shareholder was Naresh Goyal, the airline's NRI founder and chairman. Initially, both Gulf Air and Kuwait Airways had acquired minority stakes in the airline. However, the Government of India subsequently decreed that foreign airlines would not be allowed to own any shares in any Indian airline (though other foreign entities and individuals could still acquire/own minority stakes in Indian carriers).


As a result of this ruling Gulf Air and Kuwait Airways sold their stakes to Naresh Goyal who then became the airline's sole shareholder. Jet Airways floated a minority stake of ca. 20% on the Mumbai stock exchange in 2005 to enable it to reduce the debts that had been accumulated since its inception as well as to fund its ambitious fleet expansion programme, including the acquisition of a sizeable fleet of brand new Airbus A330 and Boeing 777 long-haul widebodied jets to operate new long range services, primarily to Europe and North America. This resulted in a reduction of Tailwind's stake in the airline to just below 80%. According to the company's articles of association, the bulk of Naresh Goyal's shares in Tailwinds are actually held on behalf of several other individuals who all seem to be ordinarily resident citizens of India. While Indian government officials have been satisfied that these arrangements do not compromise Jet Airways' status as an Indian-owned airline that is effectively controlled by Indian citizens, they were viewed as "problematic" by the American authorities.


Another issue that was "problematic" in the eyes of the US aviation authorities and contributed to delaying Jet Airways being granted a foreign carrier permit to enable it to commence commercial airline operations in the US is the controversy surrounding Naresh Goyal's actual citizenship. There have been recurring reports in the Indian media that he is an Indian-born, naturalised German citizen who is permanently resident in the UK. Although India's citzenship law barring dual citizenship for Indian passport holders has recently been amended permitting Indian citizens to take up another country's citizenship - bar Pakistan and Bangladesh (for obvious national security reasons) - without forfeiting their Indian citizenship as long as that country permits dual citizenship, this does not apply to Germany as it does not allow dual citizenship (unlike the UK, US, Canada, Australia and the Netherlands for instance, which do allow dual citizenship).


If these media reports turn out to be true and Jet Airways is effectively controlled by Naresh Goyal through his majority ownership of Tailwinds, the US authorities mulling over the company's application to begin commercial operations in the US may construe this as a violation of the recently concluded "open skies" bilateral air services agreement between India and the US as well as international aviation law, which state that an airline must be substantially owned and controlled by citizens of the country where it is based in order to qualify as a "flag carrier" representing that country. This means that if Jet Airways were effectively controlled by a German rather than an Indian citizen, its traffic rights between India and the US and possibly other countries as well might need to be renegotiated under the German-US "open skies" bilateral aviation accord. In addition, the US and other countries could ask the Indian Government for further concessions for their own designated flag carriers providing scheduled air services to/from India if Jet Airways wanted to protect its international traffic rights from/to India. This, in turn, could lead the company's Indian-based competitors to complain to the Indian authorities that Jet Airways was not a "genuine" Indian flag carrier and might potentially result in competitors applying for the revocation of Jet Airways' operating permit and traffic rights (in India and abroad).


Rumours have circulated in the past that Tailwinds might act as a front for foreign airlines or possibly even Dawood Ibrahim, India's most wanted criminal, as well as global terror organsiation al Qaeda. Since Dawood Ibrahim's name is on Interpol's most wanted list and has been declared a terrorist by the US government, the US authorities' review of Jet Airways' application for permission to commence regular commercial airline operations between India and the USA by being issued with a so-called "foreign [air] carrier permit" took more than two years coming. The US State Department now seems to be convinced that the ownership pattern of Jet Airways does not in any way clash with national security.

The latest controversy that could tarnish the airline's reputation in the UK, its most prestigious and potentially largest overseas market, arose when Asmin Tariq, a former British-born contractor of Pakistani descent who was working for the airline as a security agent at London's Heathrow Airport and was subsequently made a member of staff when the airline decided to bring its London-based security operation in-house, became implicated in the foiled terror plot of August 10, 2006 to blow up over several weeks up to ten transatlantic airliners belonging to three different US airlines in mid-air on their way from London-Heathrow/-Gatwick to New York JFK/Newark and Los Angeles/LAX airports.


Asmin Tariq has been arrested along with the other 20+ suspects and is now in British police custody. In addition, he has also been suspended from duty by Jet Airways. When asked how such a person could have been employed by the airline in a position demanding extreme confidence and trust, Jet Airways defended its conduct by issuing a statement on its web site saying that the aforesaid person was a UK passport holder who had passed the stringent security requirements of BAA, Heathrow's owner and operator, and that under UK employment legislation the company was obliged to offer any permanent appointments to former contractors once the contract that formed the basis of their original employment had been terminated.

Fleet

The Jet Airways fleet includes the following aircraft (as of August 2006) [2] :


The average age of Jet Airways fleet is 5.1 years in July 2006.

Following approval to begin long-haul operations to London, Jet Airways sub-leased 3 Airbus A340-300E from South African Airways.

Jet Airways has an order for 10 Airbus A330-200 aircraft (with options on a further 10 aircraft) as well as an order for 10 Boeing 777-300ER. Deliveries are due to begin early in 2007, although the airline will become the first Indian A330 operator in May 2006, with the delivery of an aircraft on lease from International Lease Finance Corporation. [1]

Industry data

Jet Airways has commercial agreements with the following airlines:

Jet Airways is also a potential future member of the Oneworld alliance [citation needed].

Merger with Air Sahara

On January 19, 2006 Jet Airways announced that it was to buy Air Sahara for $500 million in an all-cash deal. Everything, including Sahara's assets and infrastructure, would belong to Jet Airways. This deal would have been the biggest in India's aviation history and the resulting airline the country's largest, had it gone through.

Market reaction to the deal was mixed, with many analysts suggesting that Jet Airways was paying too much for Air Sahara. The deadline for the deal to be completed was June 21, 2006, but in the days before this, the chances of the takeover being completed began to look shakier. Jet Airways claimed that a final sticking point was the government's delay in approving Jet chairman Naresh Goyal's appointment to the Air Sahara board. Air Sahara countered that Jet Airways had engineered this impasse by delaying the request for such approval, as a way of extricating themselves from a deal they now regretted. Jet was said to be willing to go ahead with the deal only if the originally agreed price was lowered by 20-25% on the basis of Air Sahara's mounting debts, an option which was firmly rejected by Air Sahara. Finally both sides confirmed that the deal was off.

Following the failure of the deals, the companies have now filed lawsuits seeking damages from each other.

The Bombay High Court on Friday 22nd September allowed Jet Airways to withdraw Rs 1,500 crore deposited by it for acquiring rival Air Sahara. "Jet will have the right to withdraw Rs 1,500 crore against bank guarantee of the same amount," Justice D K Deshmukh said in his order. The amount in the escrow account will go to Jet and the interest will go to Air Sahara. However, the escrow account formalities will be decided by an arbitration tribunal. Arbitration is to begin on 9 October 2006.

References

  1. ^ a b "Indian airline Jet Airways is to buy rival carrier Air Sahara in a deal worth $500m (£284m)". BBC News. 2006-01-19.
  2. ^ Flight International, 3-9 October 2006


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