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A saga of Jet Air's controversies

Last updated on: September 9, 2009 

A saga of Jet Air's controversies

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Controversies have perennially dogged Jet Airways. The latest tussle with the pilots has further dented the company's reputation, demoralised employees, inconvenienced thousands of passengers and resulted in losses running into crores for the beleaguered airline.

For the second day running, Jet Airways on Wednesday cancelled over 100 domestic and international flights operating out of various cities with the agitation by its pilots continuing.

The trouble started after Jet sacked two of its senior pilots -- Capt. Balaraman and Capt. Sam Thomas -- for joining National Aviators Guild, a newly formed union.

The pilots' union planned to go on a strike following the firing of the two pilots, but later called the protest off. However, pilots expressed their solidarity by taking mass sick leave on Monday.

Infuriated by this move, Jet sent doctors to the homes of some of the pilots to check if they were really sick, and then sacked more pilots and after obtaining an order from the high court that retrains pilots from going on a strike.

The airline has taken disciplinary action against eight pilots since the strike began on Tuesday. However, over 600 union members have decided to stay off work till the management reinstates the sacked pilots.

The pilots' strike further deteriorates the airline's financial position. The airline posted a net loss of Rs 225.33 crore (Rs 2.253 billion) in the first quarter ended June 30, 2009.

Here's a look at the controversies that have hit Jet Airways over the years...


Image: Passengers speak with employees at the Jet Airways ticketing counter at the domestic airport in Mumbai on Sep 8.
Photographs: Punit Paranjpe/Reuters
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Saga of Jet Airways' controversies

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Doubts over Jet's ownership

For long, several questions have been raised about the ownership of Jet Airways and its source of funding.

Some years ago, the Intelligence Bureau had alleged that there was contact between the airline's founder Naresh Goyal and some underworld dons. However, the investigations could not be completed as the Tail Winds Ltd, the company which owns the airline, is incorporated in the Isle of Man.

Naresh Goyal has repeatedly said the accusations about his alleged links with the underworld are baseless and outrageous.

In 2007, a PIL was filed by social activist M Furquan, alleging that Goyal had links with underworld don Dawood Ibrahim and this could be a threat to national security. The petition was dismissed by the high court. Later, the Supreme Court also dismissed the petition.

Furquan's petition claimed that the government had ignored intelligence agencies' warning on gangsters' funding for Jet Airways. However, the Supreme Court overruled the need for an investigation.


Image: Passengers speak with employees at the Jet Airways ticketing counter at the Mumbai airport.
Photographs: Punit Paranjpe/Reuters
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Saga of Jet Airways' controversies

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Goyal's business empire

The business empire of Naresh Goyal, chairman of Jet Airways, includes 18 smaller companies -- 14 of them registered in India and four abroad, according to a Business Standard report.

These are in addition to Tail Winds Ltd, a company incorporated in the Isle of Man and wholly owned by Goyal.

Tail Winds owns more than 99.99 per cent of Jet Airways, which has now filed a Red Herring prospectus with the Securities and Exchange Board of India for an initial public offer of 20 per cent of its fully diluted paid-up equity.

The 14 companies registered in India are listed as promoter group companies in the prospectus and are engaged in a wide range of activities.

Four of them are general sales agents for different airlines, including Jet Airways, two are investment companies, two are in trading, two in transport and logistics business, one in real estate, one in courier business, one undertakes tours and one is yet to commence any commercial activity.

All these companies are inter-connected through a complex web of shareholding, the net result of which is that Goyal owns all of them directly or indirectly.

For instance, the shares of Jetair Pvt Ltd, which is a GSA (general sales agency) for 15 international airlines in India, and Jet Airways, are held by Goyal, his family members and three other promoter group companies - International Cargo Carriers, France Air and Jet Enterprises, whose shares in turn are held by other promoter group companies, Goyal and his family members.

Jetair was incorporated way back in 1974. 


Image: Naresh Goyal, chairman, Jet Airways.
Photographs: Vijay Mathur/Reuters.
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Saga of Jet Airways' controversies

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Jet's problem in the US

It took Jet Airways more than two years to get the necessary clearances from American authorities to fly to the United States.

The charges against Jet Airways were raised by an airline with a similar name, Jet Airways Inc, which objected to the airline's links with the underworld and trade infringement over the name.

But the department of transportation in the US stated it was not a valid reason to prevent Jet from flying to the US.


Image: People look at the newly introduced premier class cabin in a Jet Airways Boeing 777-300.
Photographs: Punit Paranjpe/Reuters
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Saga of Jet Airways' controversies

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The deal to buy Sahara

In April 2007, ending months of legal disputes, Jet Airways struck a deal to buy out Air Sahara for Rs 1,450 crore (Rs 14.50 billion) after clearance by a three-member arbitration panel.

Jet Airways chairman Naresh Goyal said this price represents a 40 per cent discount to the originally agreed price.

All shares of Air Sahara is to be transferred to Jet on payment of Rs 1,450 crore, inclusive of Rs 500 crore (Rs 5 billion) already paid by Jet. The remaining amount is to be paid in installments, the counsel for Jet Harish Salve said.

The deal for the merger had been called off after Jet Airways and Air Sahara moved the courts seeking to restrain each other from operating the escrow account opened for the purpose.

Jet Airways filed an arbitration petition before the Bombay High Court seeking direction to stop Air Sahara and its seven directors from withdrawing Rs 500 crore transferred by it as part of the Rs 2,300 crore (Rs 23 billion) acquisition deal reached on January 19, 2006.

The deal fell through, following Jet's failure to get regulatory clearances by the deadline of June 21, 2006, both parties moved court and the matter was directed for arbitration.

Sahara had threatened to sue Jet Airways, seeking damages to the tune of Rs 2,000 crore (Rs 20 billion) from the airline for illegally backing out from the deal.

Even two years after the merger, the court battle is still on. 


Image: Subroto Roy (R), chairman, Sahara India, with his wife Swapna Roy.
Photographs: Sahara Corporate Communications/Reuters.
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Saga of Jet Airways' controversies

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What's the dispute about?

Sahara has filed a petition claiming that the Naresh Goyal-owned airline had defaulted on the installment amount due as payment for acquisition of Sahara Airlines, now JetLite, according to a PTI report.

Hence it was liable to pay the original deal amount of Rs 2,000 crore (Rs 20 billion) and not the re-negotiated amount of Rs 1,450 crore.

Sahara contended that Jet had not paid the installments in full, while Jet claimed that it had paid an amount of Rs 100 crore (Rs 1 billion) as the first installment, deducting Rs 37.50 crore (Rs 375 million) as tax dues.

On the second installment, it deducted another Rs 50 crore (Rs 500 million). This was done after the Income-Tax Department raised a tax demand of Rs 107 crore (Rs 1.07 billion) on the then Sahara Airlines, which, Jet claimed, is for a period prior to its takeover of Sahara.

Jet acquired Sahara Airlines in 2007 for Rs 1,450 crore. It paid Rs 900 crore (Rs 9 billion) in cash; and the rest, an amount of Rs 550 crore (Rs 5.5 billion), was to be paid in four annual installments of Rs 137.50 crore (Rs 1.375 billion) each beginning March.


Image: A Jet Airways plane approaches to land at Delhi airport.
Photographs: Desmond Boylan/Reuters.
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Saga of Jet Airways' controversies

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A pact with Vijay Mallya's Kingfisher

During the second half of 2008, Naresh Goyal joined hands with rival Vijay Mallya's Kingfisher Airlines.

In a move to save costs, the two airlines signed a deal that would rationalise the cost of operation, the sharing of codes, prices and availability, fuel management and ground handling, making Jet Airways-Kingfisher the largest market player in India.

There was a lot of hue and cry over this as this pact could hit low-cost airlines, travel agents, private airport companies and air travellers.

The Competition Commission of India launched a probe to check if this move is anti-competitive so till now the alliance has not started working.


Image: Kingfisher chairman Vijay Mallya.
Photographs: Reuters
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Saga of Jet Airways' controversies

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Jet 'fires' 2,000 employees

The tussle between the Jet management and the employees first came to light when the airline sacked 1,900 crew members, in October 2008.

The employees strongly protested against the move with the support of the Raj Thackeray led Maharashtra Navnirman Sena (MNS). Jet Airways had to bow down to political pressure and reinstate all the employees.

Later, Naresh Goyal had apologised for the trauma. "I apologise for the trauma which the sacked employees have gone through in the last two days. The company is like my family and so are the employees. As the father of the family, I cannot see unhappy faces. My conscience does not allow me to see my employees worried," he said.

Stating that he had not taken the decision under any political pressure, Naresh Goyal said that the management of the company took the decision of sacking the employees due to financial woes that the entire industry is facing.


Image: Jet employees with Raj Thackeray.
Photographs: Arun Patil.
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Saga of Jet Airways' controversies

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Private airlines called for bailout

In August, the crisis-hit airline companies threatened to go on strike if the government did not offer a bailout package. They threatened to suspend services indefinitely if this was not done.

Jet Airways along with other airlines said the high prices of jet fuel and airport charges have added to their financial burden.

Ironically, Naresh Goyal who calls the pilots' strike illegal said, "This is not a threat or an ultimatum; this is a request to draw the government's attention to the plight of the aviation industry. It is not that the government does not know about our plight. I am positive we will not have to stop operations on August 18 and something will work out."

However, the government ruled out any kind of financial bailout for private airlines. The airlines had to call back the strike as the government threatened to take stern action.

The latest pilots' strike is now again plaguing the airline. . .


Image: Jet Airways hit by a crisis again.

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