Is Jet Airways the next KingFisher Airlines? Can Tata Group really acquire control of JetAirways? Will Naresh Goyal cede his control? Will Etihad buy more stake of JetAirways? What role will Government Play? What should an Investor of Jet Airways do? Is it safe to trade in such a volatile stock? Let’s discuss the current Financial Crisis in Jet Airways in detail in this post.
Current Updates: On 26th Nov. 2018 Jet Airways handed over pink slips to 16 more employees. Last month it laid off 20 employees. Jet Airways is rationalizing the human resource for the cost-cutting purpose. They have been delaying Salaries of employees from last few months. September Salary dues will be paid to employees on 5th December 2018. Jet Airways has around 16000 employees and more lay-off is possible in near future.
What is the Crisis all about? Recently, one of the leading Newspaper claimed that Jet Airways has left with only 60 days of funds for carrying out its Operations. On the same day, Management of JetAirways denied this News and ensured the Investors that Jet Airways posted losses for 3 consecutive quarters and it is definitely facing a Financial crisis due to increasing Aviation Fuel prices and depreciating Rupee but Management of JetAirways is taking all the right steps to overcome the Financial Crisis.
Effect on Share Price of Jet Airways: 52-week high of Jet Airways was 883.65 and a 52-week low was 163. Clearly, when Brent Crude Oil price rallied from 45 to 87 Jet Airways stock price fell from 883.65 to 163. From 3rd Oct 2018, Brent Oil started correcting again which resulted in some delivery based buying in JetAirways. When the stock was trading near 220, the Speculation that Delta Airways will buy 24% stake from Etihad in Jet Airways and Tata Group too will buy Majority stake from Naresh Goyal created a buzz in the Market.
The stock reached 280 within no time. On the previous day of Tata Group’s Management Meeting stock rose by 25% in a single day and more 8% rise took Jet Airways to 346 on next day (16th Nov 2018). After the Market hours. Jet Airways released a press note in which it clarified that any such news of Tata Group buying Jet Airways is only a Speculation and only preliminary discussion is going on. Profit booking dragged Jet Airways down after that. But for few days it managed to hold SL of 300 intact. On 26th November 2017 stock broke the resistance of 300 as Market came to know that Naresh Goyal is not ready to cede its control in JetAirways and looking for more cash from its old Stakeholder Etihad Airways for its Operations.
Why Tata Group deal isn’t materializing? Founder Naresh Goyal and his wife have 51% stake in Jet Airways. Etihad Airways own 24% stake in Jet Airways. Rest 25% of shares are held by minority shareholders and retail investors. Tata Group owns AirAsia and Vistara Airlines which is a joint venture with Singapore Airlines. Tata wanted to buy out entire 51% of Naresh Goyal to acquire the Jet Airways which can make them second largest Airline in India after Indigo. But Naresh Goyal was ready to dilute his equity to as low as 15%.
This meant that Tata Group should give profitable exit to Etihad by buying their 24% to reach the magic figure of 51%. The government wanted Tata to help Jet Airways in this Crisis as they themselves can’t bailout Private Airlines and crash of Jet Airways is not good for Customers as well as 16000 employees of Jet Airways.
What steps did Goyal take after Tata Group – Jet Airways deal didn’t Materialize?
Naresh Goyal and his team met Tony Douglas, Group CEO of Etihad Airlines last Sunday. Goyal offered to dilute his equity from 51% to as low as 15% and requested Etihad to double its stake in Jet Airways in exchange of Cash Infusion. Naresh Goyal prefers dealing with Etihad than accepting the deal offered by Tata Group. This way Etihad Airlines may hold as high as 49% in Jet Airways in the coming future depending on how much Cash they will infuse in the beleaguered Jet Airways.
This is not the first time Aviation sector facing Financial Crisis. In India, we saw consolidation in this sector since 2010. Kingfisher Airlines closed its operation in 2012. Since then Jet Airways is handling 17.8% passenger market share with its fleet size of 124 which serves 67 destinations across the world.
What to do in Jet Airways shares now?
The rally in stock was due to Speculation that Tata Group will acquire Jet Airways. But now as we all know that Naresh Goyal is taking help of Etihad to revive debt-ridden Jet Airways, the stock has started to cool off. We may see stock falling up to levels of 240-260 again this week. The fundamentals of Jet Airways company are really bad and this stock is no more an Investment bet. High-risk traders can trade in stock but Stop Loss of the Stock can be as deep as 240 which doesn’t make any sense to trade in stock. I would suggest you, stay away from this stock for now. Indigo is always a better option if you want to invest in the Aviation sector.
This post is for Educational Purpose. Stocksbaazigar Mr. Deepak Doddamani is NSE’s Certified Investment Analysis Professional and NSE’s Certified Marketing Professional level – 4. He is not SEBI registered Financial Advisor. Please consult your Advisor before taking any Investment related decisions. Thank you.