Introduction
Jet Airways (JA) is among the airlines that failed to avoid bankruptcy. Four years ago, Surjit Trivedi, a long-term manager of Agile Group (AG), was in charge of making a final proposal regarding investment in JA.As Mr. Trivedi, I would recommend that the AG board avoid investing in JA because of the company’s poor stability, unclear strategic capacity, and insufficient attractiveness as per its previous negotiations.
Recommendation to the Board
Recognizing the Option’s Lack of Stability
As Trivedi, I would encourage the board to refrain from investing in JA based on the investment opportunity. The civil aeronautics market of India saw tremendous growth in the four years prior to 2019, with the change in the market’s size exceeding 18% (Sindhwani et al., 2022). Nevertheless, JA did not manage to turn this trend into an advantage. In terms of income stability, which is a criterion of the investment’s attractiveness, JA’s loss/profit statements suggest an obscure picture for AG.
Starting with a loss exceeding 1,42,000 Indian lakhs in 2012, JA saw a twofold growth in losses in 2014 and some improvement in 2015 (Sindhwani et al., 2022). The 2017-2018 period has enabled JA to return to the loss values of 2013 (Sindhwani et al., 2022). Aside from large-scale objective factors, including fuel prices and demand, the team’s decisions could have contributed to such instability, and AG should consider this issue.
Incorporating the Leadership’s Characteristics into Assessments
In my recommendations regarding ceasing the plan to invest in JA, I would also emphasize JA management’s questionable strategic thinking, demonstrating that the restructuring of JA’s managerial structure should be a prerequisite for investment/collaboration. In 2012, JA’s inability to compete in the low-cost carrier market became prominent. Specifically, even high ticket discounts did not prevent JA from having lower load factor scores compared to GoAir, SpiceJet, and other competitors in India (Sindhwani et al., 2022).
The company’s failure to profit from such an attractive opportunity in the longer term might reveal leadership mistakes and the management’s suboptimal ability to develop a flexible strategy. Considering JA’s past failures, with its managerial team remaining the same, the company is likely to continue demonstrating poor adaptability to changing market trends. Therefore, I would inform the board that proceeding with investment plans would be an overly risky solution.
Accounting for JA’s Past Negotiation Issues
To justify my recommendation, I would also draw the board’s attention to JA’s relatively low attractiveness as an investment option, which is clear from its negotiation history. Most hypothetical alliances considered by JA failed to occur due to disagreements pertaining to stock prices or other unreported causes. In the last three months of 2018, JA lost Etihad Airways, the Tata Conglomerate, and two more potential strategic partners and investors (Sindhwani et al., 2022).
In the spring of 2019, JA’s debt reached 1,500,000 mln Indian rupees, and its share prices fell by more than 30% immediately after ceasing operations (Sindhwani et al., 2022). Overall, based on JA’s statistics, in 2019, the company’s share price decreased by almost 50% between the beginning of January and the end of May (Sindhwani et al., 2022). With these unfavorable trends in mind, I would communicate the high-risk nature of the investment opportunity to the board.
Conclusion
To sum up, the board could be recommended to avoid any investment in JA due to the option’s overall instability and unattractiveness, as well as its executive team’s unclear ability to prevent further strategic failures. JA overvalues its assets in negotiations with potential strategic partners, which does not support the option’s feasibility. As Trivedi seeks to maximize his company’s financial safety, such a recommendation seems more suitable than taking excessive risk.
Reference
Sindhwani, S., Mahadev, K., & Sidhu, P. K. (2022). Jet Airways: Tale of their takeoff and crash landing. Indian School of Business.