How Jet Airways founder Naresh Goyal built a successful airline and then sank it

The arrest of Naresh Goyal, the founder of Jet Airways, by the Enforcement Directorate on Friday evening in an alleged money-laundering case points at a sheer downfall of a man who once soared high in India’s aviation industry. Earlier in February, the Bombay High Court had quashed an Enforcement Directorate’s money-laundering case against Goyal and his wife Anita. However, the court had observed that if any fresh case was registered against the couple by any law enforcement agency, the ED could probe them. The current ED probe comes after a criminal complaint against Goyal by Canara Bank.

From modest beginnings, sleeping in his uncle’s travel agency in Delhi, where he worked during the day, Goyal weaved through the thicket of Indian bureaucracy to build the country’s biggest domestic airline, the Guardian had written about him in 2006 when he was at his peak of success.

Goyal’s humble beginnings
Goyal rose from the ground, working his way up from a travel agency to founding an airline that was counted among the best. Born at Sangrur, a small town in Punjab, he studied commerve at a college in Pataila. He began his entrepreneurial journey as a cashier at his uncle Charandas Ramlal’s travel company East-West Agencies. He grew to become an independent general sales agent (GSA) building connections with airline executives across the world. 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, according to an ET story.
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 Rs 5 lakh, ET had reported. Then, over lunch and subsequent cups of tea, he had a three-hour discussion on buying some smaller aircraft. This was a strategy meeting minus corporate frills.

Jet Airways 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.

Two mistakes that Goyal made
Many observers argue that Jet’s financial problems started with Goyal buying out rival Air Sahara in 2007 for Rs 1,450 crore, an ET story had narrated when Jet shut down its operations in April 2019. 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,” an industry executive had told ET.
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 the 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 had told ET.

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,” an executive had told ET. “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.”

The beginning of the downfall
Jet faced its first serious financial distress in 2011-12. Goyal responded by pretty much single-handedly leading negotiations with Etihad, run by hard-nosed Australian James Hogan. Close to 50 meetings later, Goyal managed to sell Etihad 24% for $379 million, a near-impossible 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, the ET story had narrated.

“Etihad’s entry was the first instance that filled him with fear of losing control,” an executive had told ET. 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.

The nosedive
In the first signs of big trouble, Jet posted Q4FY18 loss of Rs 1,036 crore, as against a net profit of Rs 602 crore in the same period a year earlier. This was the company’s first quarterly loss in 11 quarters. Jet’s net worth had turned negative. In August, KPMG India affiliate BSR & Co refused to sign on the first quarter results of Jet. The audit firm raised doubts over the airline’s ability to continue operations.

The crisis had started in March 2018 with delayed salary payments for employees and a 25% pay cut for top management. It escalated sharply between January and March 2019 with the airline grounding more than 100 planes.

On multiple occasions, potential investors Etihad and TPG threatened to walk out if Goyal remained at the airline. Tatas had carried out talks with Goyal for a possible investment. But talks with Tatas as well as another potential investor, Delta Airlines, stalled over Goyal’s future role. Prospective investors wanted Goyal to cede control. His departure was seen as a key element of any revival strategy, having been unable to prevent the airline’s slide.

In March 2019, lender SBI asked Goyal and three fellow directors to resign in view of the airline edging closer to the brink after more and more planes began getting grounded every week for lack of funds. Lenders took over the company’s management and board. Lenders came to own slightly more than half of Jet, while Goyal’s shareholding had reduced to half of his earlier holding of 50.1%

On a night in April 2019, Jet decided to suspend all flights as cash ran out and banks refused to give more money. The move came after Jet’s last-ditch attempt to raise emergency loans failed. The airline had approached banks with an appeal for Rs 983 crore. The banks refused to release any funds without additional collateral. Jet had defaulted on loans as well as vendor and lessor payments. It had been forced to ground planes since the beginning of the year primarily due to defaults to leasing companies. And it hadn’t paid its employees since January.

Goyal, who was out of Jet but was still getting clingy, flummoxed lenders when from London he 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. “Goyal has failed his company, his employees and his shareholders,” a top airline executive had told ET at that time. “He had a readymade investment opportunity from Tata Sons, which he squandered. Jet was sailing till January. Then it all went downhill.”

Jet’s fall is a story of the fall of its founder, an ET story had said. Few business failures are so inseparable from the failings of their promoters.

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