Jet Airways has been grounded temporarily. The word ‘temporarily’ needs to be taken with a pinch of salt given that it is easier to sell a fully-functional airline than a non-functional one.

Of course, in the conventional scheme of things, the total amount of debt of the airline grew too big and it ultimately couldn’t keep repaying its loans, and hence, had to shut down.

A news report in the Mint suggests that the airline owes Rs 11,261 crore to 11 banks. Of this amount, it owes Rs 7,251 crore to nine Indian banks.

A quick look at the financials of Jet Airways suggests that there was a little more to it than just that. Let’s take a look at the issue pointwise.

1) Jet Airways commenced operations in May 1993. Initially, Gulf Air and Kuwait Airways, had a 20% stake, each, in the airline. The Tata group has always had a soft spot for the airline sector, given that JRD Tata was a pilot himself. In 1995, they wanted to launch an airline in partnership with Singapore Airlines. The proposed airline was supposed to have a fleet of 16 aircraft. This is when rules changed, disallowing foreign airlines to own a stake in airlines operating in India. This led to the Tata proposal sinking because the expertise of Singapore Airlines would have been needed to run the airline.

2) Many other private airlines which had started operating in the 1990s shutdown pretty quickly. This allowed Jet Airways to become the largest private airline in the country, a position it held on to until Indigo came along. The interesting thing is that the governments of the day kept changing rules in a way that Jet Airways always came out on top.

3) Take the instance of when private Indian airlines were allowed to fly abroad in 2003. Up until then, only the government-owned Air India was allowed to fly internationally. And this is where the lucrative market was. Nevertheless, the rules of the game were so designed that only Jet Airways qualified.

4) The profitability of airlines is extremely sensitive to the price of oil. In the aftermath of the financial crisis which broke out in 2008, the price of oil crossed $100 a barrel. This sent the entire airline industry, globally as well as India, in a tailspin. This is when the game was changed again and the government allowed foreign airlines to have a presence in India again, after being shutout in the 1990s. Jet Airways got a saviour in the form of Etihad Airways, which bought a major stake in the airline and pumped in money to keep it going.

5) The point being that Naresh Goyal as the founder and the bossman of Jet Airways, through his excellent contacts managed the ecosystem around the airline very well. In the process, he did not allow any major private-competitor to come up against the airline in the full-service space (Which is why you see so many celebrities and regular travellers mourn the closure of the airline on social media). Kingfisher Airlines did come along for a while, but it had its own share of financial problems of being over-leveraged and had to be shut down. Both the airlines also made the mistake of trying to play the full-service and low-cost game, at the same time.

6) Like any good crony capitalist, Goyal was good at managing the ecosystem around the airline. The question is, how good was he at managing Jet Airways as a business. And this is where the real story of Jet Airways comes out. Let’s look at the total expenditure of the airline between July and December 2018. The total expenditure of the airline during this period stood at Rs 14,320 crore. Of this, the finance cost, or the interest paid on the outstanding debt, stood at around Rs 488 crore. This formed 3.4% of the total expenditure of the airline. Hence, to say that the airline went down because of its debt is not totally correct.

7) The expenditure of the airline other than its interest expenditure was very high. This included expenses like selling and distribution expenses, aircraft fuel expenses, aircraft lease and rental and aircraft maintenance. There was also something called other expenses, which was at Rs 3,322 crore during the period July to December 2018. The larger point here is that the airline was simply not making enough money to take care of all these expenses. This was also during an era when oil prices were low. Hence, the net sales of the airline at Rs 12,309 crore, during the six-month period under consideration, were simply not enough to meet its overall expenses. The airline needed to either earn more or cut down on its expenses.

8) What this tells us is that while Goyal may have been great at managing the ecosystem around his airline, he was no great shakes when it came to managing Jet Airways. If he was, the company would at least be making the kind of money it was spending on running the airline.

This is where, an old management principle, developed by Laurence J Peter and called the Peter principle, comes in. The principle basically states that every person rises to his or her level of incompetence in a hierarchy, which is precisely what happened to Goyal. While he may have been great at getting the airline going and nurturing it during its initial years, he ultimately did not have the expertise to run an airline of Jet’s size. He was good at managing the ecosystem around the airline, and which is what he should have simply stuck to, and let the professionals run the show, instead of regularly meddling with the operations.

The trouble is like most indulgent parents, who can’t let go of their kids, even when they grow up, Goyal couldn’t let go of Jet. In fact, only a few months back the Tatas wanted to buy Jet, on the condition that Goyal exit the airline. But he wouldn’t.

9) Rather ironically, the fact that Goyal didn’t allow any real competition, is now going against the airline. If he had then India would have had airlines currently which would be big enough and interested in buying Jet. Currently, there are no such airlines. The successful airlines like Indigo and SpiceJet operate in the low-cost business. SpiceJet has been interested in hiring the planes and employees of Jet.

To conclude, the story of Jet Airways and its temporary closure goes back to the old English saying, as you sow, so you shall reap.