Jet or Air India? Strategic investors in airline biz are spoilt for choice

Strategic investors in the airline business are spoilt for choice. They now can buy either Jet Airways or state-owned Air India, both of which will be up for sale. So the question is: Which is a better buy?

In terms of size, international reach, and slots, Air India is far ahead of its rival. With a fleet of 163 aircraft (which includes Alliance Air and Air India Express and it flies to over 41 international destinations and on 54 domestic routes). 

And Jet, which was taken over by banks on Monday, has 119 aircraft (currently more than half have been grounded), covering half the number of international destinations (20) and connections in 45 domestic cities, based on the data from the 2017-18 Annual Report.  

That is why Air India (including Air India Express and Alliance Air) have a 16.9 per cent share of the international market, putting themselves at the top of the charts, which is much higher than the 11.9 per cent of Jet in the quarter ended December 2018.

In the domestic space too, Air India, at 12.8 per cent, has overtaken Jet, which is at 11 per cent. The state-owned airline can also boast attractive slots like in Heathrow, Paris and New York, which are not easy to get. Jet Airways has sold its slot in Heathrow to Etihad and has leased it back from them.  

Air India owns 55 per cent of its fleet, though a large part of the new Dreamliners is under sale and lease back. But if you want the asset light lease model, Jet Airways should be your preferred choice as the bulk of its planes are under lease.

But analysts say for an airline Jet could be a much more attractive play because of the fundamental difference in the employee culture of the two companies. “Air India with its government employee culture, with over 12 unions and lack of professionalism is no match to Jet which has far higher productivity and a private sector work culture.”

The analyst says that many airlines decided to give bidding a go because they wanted the government to fix the labour issues, trim the work force before they came in which they were not willing to do. An Indian carrier wanted only the international piece of the business because they believed that erstwhile Air India had a better culture than Indian Airlines and also staff located abroad were subject to labour laws of their respective countries and not that of India, so could be dealt with more easily. Air India had over 26,000 employees and their salaries constituted for 12 per cent of its revenues which is slightly lower than Jet (which currently has 22,000 employees) at 13 per cent based on the FY16 and FY17 data in the offer documents of Air India.  

There are other challenges too. Air India has a larger debt burden which the new investor has to takeover. And its losses are many times more than that for Jet Airways. But it is much better than earlier as the government just a few days ago has cleared a proposal to transfer Rs 29,464 crore of working capital debt in Air India which were not secured by any asset to a new company Air India Asset Holding. With this the total debt in the company will come down to Rs 25,000 crore including both short- and long-term loans.

In comparison the total debt in Jet Airways books is Rs 8,400 crore and an additional Rs 1,500 crore which is being pumped in by banks to revive the company.

Also while Air India has reduced its losses it still stood at Rs 5,337 crore in 2017-18 on revenues of Rs 23,900 crore. In comparison while the revenues of Jet despite a smaller fleet is similar to that of Jet (Rs 23,958 crore) its losses were much lower at Rs 767 crore in 2017-18.