In the early days of the 1990 reforms, when Licence Raj loosened its grip on many sectors including aviation, a slew of private airlines took to the skies. Within a couple of years, all but two managed to survive — Jet Airways and Sahara Airlines. Others such as NEPC, Damania, East-West, Span, Raj, UB Air, (including Vijay Mallya’s first venture with 18 seater Dorniers) and Gujarat Airways vanished into thin air.
Of the two that survived, Jet and Sahara, the former was promoted by a little-known travel agent named Naresh Goyal. Jet not only survived the tough aviation space but also grew painstakingly and steadily into an airline of excellence India could boast of. Jet was an airline brand that matched the best in the world in quality and consistency of service, efficiency and punctuality. It was renowned for its clean aircraft cabins, technical dispatch reliability and outstanding engineering and operations management. These were no mean achievements given the sloppy and broken services of the erstwhile Indian Airlines (merged later into Air India) and the pathetic state of our airports in those days and the dreaded, strangulated and antiquated aviation regulatory environment.
To survive and thrive in the airline business over a long span of time has almost been impossible anywhere in the world. Unlike other sectors, even though the airline business is nearly 100 years old, the number of airlines that have consistently performed with growth and profitability over more than a decade and are still in business today is just a handful. The rest are struggling. Several have bitten the dust.
A Brutal Business
In India, to do well in a regulated environment, one needed a few attributes, especially in the Licence Raj, which still often manifests in the aviation sector with discretionary policies. For example, the ability to work with and — often — manipulate the government is vital. Access to capital or an ability to raise it is just as critical.
You had to be stupid not to succeed when you controlled the market or have control over scarce resources. But in the airline business, these were not enough.
As Richard Branson famously said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.”
You also had to have a personal commitment to professional excellence. And Naresh had that quality in addition to the first two attributes. He not only could manage the bureaucracy, and political environment, he was also astute, canny, street smart and committed passionately to build a professionally managed airline.
He was often accused of manipulating the party in power to benefit his airline. When Tata-Singapore airlines were denied a licence to start an airline in the country in the late 90s and the early part of 2000, many aviation stakeholders and newspapers alleged that Naresh had a hand in it.
It is often overlooked that the biggest stumbling block to reforms in the early days of our independence and even today, were not politicians but businessmen themselves who were beneficiaries of ‘licences’. Once ensconced in the system, they forget they were themselves beneficiaries of reforms. They protect their turf by using their political and monetary clout to prevent others from entering the fray.
Schmoozing In The Corridors Of Power
Naresh openly lobbied through influential politicians and MPs to stop Air Deccan, the airline that I founded, from taking off saying that ‘low cost’ is unsafe. He argued there cannot be low cost in aviation as salaries, aircraft leases and fuel prices are the same for everyone.
Howevere, he failed to stop the wave of reforms that was sweeping India as a raft of low-cost airlines (LCCs) such as SpiceJet, IndiGo, GoAir, Kingfisher (which started off as an all-economy low-fare airline) took off in the wake of Air Deccan.
When Air Deccan grew at a frenetic pace and other LCCs nibbled away at his market share, he held on to the coat tails of politicians and sought protection from the government, alleging that " fly-by-night operators" would destabilise the aviation sector (meaning established full-service airlines such as Jet) and the economy. And I remember in one public forum, enraged, I hit back: "In today's modern economy, Naresh can get protection only at pharmacies."But Naresh was successful in advocating that FDI from foreign Airlines should not be permitted into the airline sector. That ensured Kingfisher Airlines, which was desperate for investment and in its last throes, collapsed.
Not long after, he was quick and relentless, and without qualms, moving heaven and earth for its passage. He embraced Etihad Airlines by offering 24 percent equity soon after Kingfisher went belly up during the UPA-2 government.
Naresh is also a shrewd survivor and a wily street fighter.
There were often accusations against Goyal that politicians in power from across parties were on his payroll or had shares in his airline. Governments came and went but he survived them all.
The airline was on the verge of closure when charges were made in parliament that he had underworld links, as the source of his funds were difficult to ascertain, held in a complex web of holding companies overseas. But he came out unscathed through it all when investigations couldn’t find conclusive evidence.
Then there was a prolonged legal tangle with the Sahara Airlines acquisition when he was accused of violating his contract to buy out that airline. The incomplete merger, with multiple brands and models and hybrids, became a total mess and bled his airline, caught in the worst airline recession, compounded by mounting losses and an inability to raise funds. Jet share prices plunged. He faced trouble with employees who threatened to go on strike when he laid off hundreds of them. But Naresh never gave up although there were still nagging worries on the financial performance and share prices of his company, which again took a beating.
A World-Class Airline
Amid all the turbulence and near grounding of his airline, he steadily built a solid international network and secured prime international routes and hubs that are controlled by the government in bilateral agreements. And he continued to induct a brand new fleet of wide-bodied Airbuses and Boeings while simultaneously strengthening the domestic network. A lesser man would have thrown in the towel. Each time Naresh was written off, he bounced back.
Naresh Goyal is not schooled in Ivy League but possesses a native sense, which is of Indian blood and genius. His ancestral roots have business in its veins. He has an uncanny ability to seize an opportunity with speed and cunning. His astute business acumen was critical in the Indian regulated environment and often helped him steal a march over the competition.
But unlike many old world family business houses, he is an offspring of the reforms and product of the new India — the India of possibilities in the wake of liberalisation. And therefore, he deserved unreserved praise as an entrepreneur who gave India a truly world-class airline that India can boast of.
But now, Jet has almost collapsed. Most planes are grounded and pilots are joining competitors who are out to kill a wounded bird. Jet is saddled with mounting losses. Resurrection will not be easy. Hubris creates an opaque vision. Naresh’s love and emotional attachment to Jet Airways blinded his judgement.
Now there's good news that Naresh and other board members have agreed to step down. The banks and other investors must put their heads together and without losing time inject funds and bring about necessary changes through the CEO and his team.
While Jet was a great airline and envy of the industry, it must not be forgotten that the airline was bleeding cash heavily, which sent it to a tailspin. It must be remembered the full-service airline model is inherently flawed against the onslaught of low-cost competitors.
It's true all over the world more so in India, which even today has the lowest penetration in per capita air travel comparable to the poorest countries. Even today, only 4 percent of India are able to afford air travel.
A New Runway
And the growth of the airline is possible only with ruthless cost-cutting, innovation, and a complete change in the business model.
Jet badly needs an outstanding professional management team that can run the airline without interference. Investors must hold the CEO accountable to deliver immediately on getting all the aircraft airborne and stem the cash haemorrhage.
Indian customers and the economy would have suffered if Jet Airways had gone belly up. More than 15,000 trained people would have lost jobs and valuable assets would have been laid to waste. It would have a ripple effect on other businesses and collateral damage to all stakeholders.
Just as mergers and acquisitions by big business can create undesired monopolies, bankruptcies of companies can also result in one or two players controlling the market and customers at mercy of cartels.
Hopefully, with Naresh laying down his arms, the runway is cleared for a new takeoff of Jet Airways. That should bring cheer to many.
GR Gopinath is the founder of Air Deccan.
First Published: Mar 26, 2019 8:11 AM IST
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