Analytical Profile of Jet Airways

Analytical Profile of Jet Airways
A PROJECT REPORT ON
ANALYTICAL PROFILE OF JET AIRWAYS

SUBMITTED BY
HARSH N. SOLANKI
T.Y.B.M.S. [Semester V]
MITHIBAI COLLEGE
VILE PARLE (W), MUMBAI - 400 056
SUBMITTED TO
UNIVERSITY OF MUMBAI
ACADEMIC YEAR
2006 - 2007
PROJECT GUIDE
MR. KRISHNAN BALAKRISHNAN
-1-
PROJECT REPORT ON
SUBMITTED BY
HARSH N. SOLANKI
T.Y.B.M.S. [Semester V]
MITHIBAI COLLEGE
VILE PARLE (WEST)
SUBMITTED TO
UNIVERSITY OF MUMBAI
ACADEMIC YEAR
2006 - 2007
NAME OF PROJECT CO-ORDINATOR
MR. KRISHNAN BALAKRISHNAN
DATE OF SUBMISSION
SEPTEMBER 8, 2006
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DECLARATION
I, Mr. Harsh N. Solanki, of Mithibai College of TYBMS [Semester V] hereby
declare that I have completed my project, titled Analytical Profile of Jet
Airways in the Academic Year 2006-2007. The information submitted herein
is true and original to the best of my knowledge.
___________________
__
Signature of Student
[Harsh N. Solanki]
CERTIFICATE
I, Mr. Krishnan Balakrishnan, hereby certify that Mr. Harsh N. Solanki of
Mithibai College of TYBMS [Semester V] has completed his project, titled
Analytical Profile of Jet Airways in the academic year 2006-2007. The
information submitted herein is true and original to the best of my knowledge.
______________________
Signature Of The Principal
_____________________
Signature Of TheProject Co-ordinator
[Dr. Kiran V. Mangaonkar]
[Mr. Krishnan Balakrishnan]
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Objective and Research Methodology

The Objective of this Project Report is to gain an insight into the working of an
Airline Company. Sales, Marketing and Human Resources have not been
included in the report. Project revolves only around the Financial working of a
company to better understand the ability of a Premium carrier to sustain itself
in an increasingly competitive environment which is driven by intrusion of
many Budget Airlines that are mostly Low cost, no Frills. Thus, the project
also specifies that in spite of huge profits for the year, the market share of the
company is going down.
The Research Methodology adopted was simple wherein the General
Manager Finance, Jet Airways were interviewed in the S M Center office of
Jet Airways, which also certifies the Authenticity of the Report. In fact, this
was the major reason for choosing Jet Airways since the guide is an
Encyclopedia of knowledge with over 16 years of experience in the same field
and specialization. The project was not made overnight. It is a result of many
meetings with the abovementioned.
Most of the information in the Project Report is primary and original. The
Secondary information has been sourced from the official website of Jet
Airways www.jetairways.com for getting the financials of the company.
Based on the information, an Analysis is done on specific Operating
Parameters which might be very helpful for any company. Hope the objective
of passing the knowledge gained to the reader of the project will be achieved!
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Executive Summary
Project Report is titled as Analytical Profile of Jet Airways. This project gives
the reader an insight into the financial working of a Domestic carrier in India.
The project starts with the Introduction and History of the Aviation Industry in
India, wherein its existence has been traced since 1912 and also includes the
Geographic Location of India which has proved to be a boon for International
Operations. Then, the Current Scenario in Indian Aviation Industry is
mentioned; where its seen that it is now becoming a buyers market rather
than the sellers market due to increased competition. After this, to narrow the
perspective and as the Topic suggests, the focus has moved on to Jet
Airways and after the Introduction, a SWOT Analysis of Jet Airways is done
after which working has been shown. As regards working, first the Budgeting
by Jet Airways is done. This is followed by interesting topics like
Responsibility Centers, Cash Flow, Sensitivity Analysis, Capital Budgeting
and Variances. This provides an excellent insight as to how the companies
budget and also specify the ways in which the goals should be achieved.
After this, comes the Financial Analysis of the company on the grounds of
some specific parameters, comparing two years performance and knowing
the position and standing of the company in the market. This is followed by
the information on IPO and Post IPO events for the company, where Share
prices since 05-09-2005 till 01-09-2006 have been tracked in light of the
changes in Sensex. Also the Volume of Shares being traded is shown.
International operations have been briefed upon with the Sector wise Seat
Factors and the update and turnaround.
This is followed by the most-hyped Air Sahara Acquisition, which is now not
looking very likely. This is followed by Conclusion, Recommendations and
Glossary.
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Acknowledgements
I extend my Heartfelt Thanks to Mr. Krishnan Balakrishnan for his
unending support and guidance throughout the project. This project is
of immense importance for me and helped me in ways more than one.
I also extend my appreciation towards the Mithibai College Faculty
members for their guidance in the course of my project.
I also would like to take the opportunity to Thank my family for being
co-operative for doing the project.
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Index
Sr. No.
1
2
3
3.1
3.2
3.3
3.4
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Topic
Introduction & History of Indian Aviation Industry
Current Scenario in Airlines Industry in India
Jet Airways
Introduction
Evolution of Jet Airways
Mission Statement of Jet Airways
Fleet of Jet Airways
SWOT Analysis of Jet Airways
Budgeting by Jet Airways
Responsibility Centers
Cash Flow
Sensitivity Analysis
Capital Budgeting
Variances
Comparative Company Operating Parameters
Comparative Income Statement
Comparative Summarized Balance Sheet
Calculation of Important Ratios
Information about IPO and Post IPO
International Operations
Jet-Sahara Deal
Conclusion
Recommendations
Glossary
Bibliography
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Page No.
01
04
07
07
09
09
10
11
17
28
29
30
32
33
34
35
39
43
46
48
50
55
57
58
59
Introduction & History of Indian Aviation Industry

The history of civil aviation in India began in December 1912. This was with
the opening of the first domestic air route between Karachi and Delhi by the
Indian state Air services in collaboration with the imperial Airways, UK, though
it was a mere extension of London-Karachi flight of the latter airline. Three
years later, the first Indian airline, Tata Sons Ltd., started a regular airmail
service between Karachi and Madras without any patronage from the
government.
At the time of independence, the number of air transport companies, which
were operating within and beyond the frontiers of the company, carrying both
air cargo and passengers, was nine. It was reduced to eight, with Orient
Airways shifting to Pakistan. These airlines were: Tata Airlines, Indian
National Airways, Air service of India, Deccan Airways, Ambica Airways,
Bharat Airways and Mistry Airways.
In early 1948, a joint sector company, Air India International Ltd., was
established by the Government of India and Air India (earlier Tata Airline) with
a capital of INR 2 crore and a fleet of three Lockheed constellation aircraft. Its
first flight took off on June 8, 1948 on the Mumbai (Bombay)-London air route.
At the time of its nationalization in 1953, it was operating four weekly services
between Mumbai-London and two weekly services between Mumbai and
Nairobi. The joint venture was headed by J.R.D. Tata, a visionary who had
founded the first India airline in 1932 and had himself piloted its inaugural
flight.
In 1995 the Indian government owned two airlines and one helicopter service,
and private companies owned six airlines. The government-owned airlines
dominated India's air transportation in the mid-1990s. Air India is the
international carrier; it carried more than 2.2 million passengers in FY 1992.
Indian Airlines is the major domestic carrier and also runs international flights
to nearby countries. It carried 9.8 million passengers in FY 1989, when it had
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a load factor of more than 80 percent in its fifty-nine airplanes. Analysts,
however, attributed this high load factor to a shortage of capacity rather than
efficiency of operation. A major expansion was planned for the 1990s, but an
airplane crash in 1990 and a pilots' strike in 1991 damaged the airline, which
carried only 7.8 million passengers in FY 1992. Two other accidents in 1993,
plus several hijackings, put constraints on the growth of both airlines.
A third government-owned airline, Vayudoot, was also a domestic carrier in
the early 1990s. It provided feeder service between smaller cities and the
larger places served by Air India and Indian Airlines. By 1994 Indian Airlines
had taken over Vayudoot. Another publicly owned company, Pawan Hans,
runs helicopter service, mostly to offshore locations and other areas that
cannot be served by fixed-wing aircraft.
In 1995 India's six private airlines accounted for more than 10 percent of
domestic air traffic. Both the number of carriers and their market share were
expected to rise in the mid-1990s. The four major private airlines were East
West Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways.
In addition to the Indian-owned airlines, many foreign airlines provide
international service. In 1995 forty-two airlines operated air services to, from,
and through India.
In the mid-1990s, India had 288 usable airports. Of these, 208 had
permanent-surface runways and two had runways of more than 3,659 meters,
fifty-nine had runways of between 2,400 and 3,659 meters, and ninety-two
had runways between 1,200 and 2,439 meters. There are major international
airports at Bombay, Delhi, Calcutta, Madras, and Thiruvananthapuram
(Trivandrum), under the management of the International Airport Authority of
India. International service also operates from Marmagao, Bangalore, and
Hyderabad. A consortium of Indian and British companies signed a
memorandum of understanding with the state government of Maharashtra in
June 1995 to build a new international airport for Bombay, across the harbour
from the main city and to be linked by a cross-harbour roadway. Major
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regional airports are located at Ahmadabad, Allahabad, Pune, Srinagar,
Chandigarh, Kochi, and Nagpur.
Ideal Geographic Position of India
Fig.1
Figure showing the Strategic Location of India
Halfway between Europe and Australia.

Halfway between Africa and Asia.
Ideal Crossroad between major markets.
Supported by huge home market.
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Current Scenario in Indian Airlines Industry

India is the second most vibrant aviation market after China. This statement
made rounds in the aviation circles around the world. At the recently held
Technical Press Briefing at Airbus Headquarters in Toulouse, South of
France, the European companys executives made it amply clear of this fact
to the editors from the worlds leading trade press. The reason they say is the
strong growth anticipated in the domestic Indian traffic, which they estimate to
be 12.7 per cent per annum by 2014. Indias Aviation industry is into upswing
as it anticipates an increase of at least 20 per cent in the number of air
travellers over the next five years which will reach to 50 million form 15 million
today. India offers the right market conditions for budget airlines. This is
mainly due to the huge population, positive economic outlook, favourable
Government policies and increase in the number of people who are open to
travel. About 52 million Indians travel on premium class railways each year,
who are the new prospective customers.
India is the only country where the number of air travellers a year equals the
number of rail passengers in a day. The potential is huge. So, the low cost
carriers are not ready to waste their time and are very much into the business.
Besides the existing Air Deccan, SpiceJet, Go Airways and Kingfisher
Airlines, there are Indus Airways, Air One, East West Airlines, Magic Air,
Paramount Airways and Crystal Air are getting ready to fly Indian sky soon.
As new players are coming into fray to take advantage of this market, the
travellers have a reason to smile. Thanks to the competition, the sellers
market has been replaced by buyers market, one where buyers can
choose form different airlines. A price war is inevitable, especially given
that most new airlines are trying to woo new business and not poach on the
existing market. The industry is going to see a blood-bath as some of them
like Air-Deccan and Go Airlines are ready to offers fares as low as Re.1.
Delhi-based SpiceJet has announced to offer air travel for Rs.99. However,
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these are being done for the hype as only a few seats are available under
such schemes. But besides the hypes for wooing prospective customers, the
existing budget airlines as well the newcomers, are promising to offer
incredibly low air fares. Kingfisher is offering tickets in 20 per cent cheaper
than normal scheduled airline economy fares. Go Airlines and SpiceJet has
also followed the suit. Feeling the heat, the full-service carriers, state-owned
as well as private, are too not left behind in the race.
This, certainly, is a good sign for the aviation market, which was not explored
for many years. This is going to be a good time for buyers also. But, for the
market players, the road ahead is not going to be smooth. Though they are
enthusiastic for rediscovering this huge market, but it is going to be a tough
fight for then as competition is high. Observers are already questioning
whether profits are sustainable once full-blown competition arrives, despite
rising passenger numbers, the industry has several underlying problems that
could overwhelm new airlines. Though any competition is good for market, but
the industry has to face other constraints like steady increase in the ATF
prices, which account for about 40 per cent of the cost of operation. Poor
infrastructure of existing airports, delay in new addition to airport numbers is
going to play a spoilsport. Also the industry is going to face shortage of
manpower in terms of senior pilots, engineers and Air Traffic Controllers
(ATCs). At present, there are about 1,000 ATC in India. The ATC staff
shortfall is pegged at 40 per cent in New Delhi and 50 per cent in Bombay.
Even as the Indian aviation market is growing rapidly, another question arises
whether the infrastructure is growing at the same pace. Currently, India is
having less than 200 aircraft operating domestically which operate only 600
flights a day. While budget airlines are exploring new routes of small and
semi-towns to cater this huge market, there is an urgent need of more
aircrafts. Budget airlines save their expenses by keeping limited number of
aircraft and flying more to non-metro routes, which are not served by regular
carriers. Given the current constraint of limited parking space and long queue
for landing and taking off during peak hours, low-cost carriers which operate
on quick turnarounds are finding it difficult to maintain their punctuality. Even if
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a flight is late by several hours, passengers have no option but to wait, as
often these airlines have no standby aircraft which sometimes even force
them to cancel flights. Though almost all the airlines are having long shopping
list, but the delivery rate is not fast enough to match the growing demand for
more capacity. Faced with a shortage of leased aircraft, Indias first low-cost
carrier Air Deccan has asked Airbus to advance the delivery schedule of the
Airbus A320s by a year to 2006. Air Deccan has ordered 30 Airbus A320s and
30 ATRs whose deliveries were slated to being from 2007. It operates over
111 flights a day to 33 destinations, with a fleet of five Airbus 320s and 12
ATRs. Other airlines are too opting for early delivery of aircraft from their
respective sellers. But the two aircraft giants, Airbus and Boeing already have
huge backlog of orders. So the question arises how fast they can fulfil Indias
growing demand of aircrafts.
The Aviation industry is growing rapidly which is the good thing but unless the
aviation infrastructure grows with same pace, this new travelling group may
continue to face such problems of flight delays and cancellation. This is
certainly not an encouraging sign for these low-cost carriers who are
calculating huge customer inflow in coming years.
As the favourable approach by the Government deserves applauds, its failure
to take speedy decisions are cause of concern. Increasing the number of
airports, improving better infrastructure for existing ones, encouraging strong
public-private partnership and opening up the skies for other private airlines in
all sectors, are some of the major issues that the Government has to address
immediately. Otherwise, we will fail to put India as a hub in the map of Southeast Asia.
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Jet Airways
Luxurious aircraft, vivacious crew, impeccable service, young fleet, customer
orientation, flying incentives, modern amenitiesall these can well be
described as synonyms for Jet Airways, the domestic and international carrier
that upheld world-class standards for over a decade now. Jet is generally
thought to have the best safety standards and reputation of all airlines
operating within India. In August, 2003, Jet Airways became a Superbrand.
Jet Airways began operations on May 5, 1993 with the first flight AHM-BOM
737-9W 322. the fleet started with four Modern Generation Boeing 737-300
aircraft. Since May 1993, the airline has systematically and continually
inducted modern generation aircraft and was the first to operate the B 737400 and B 737-500 in India after their launch across the United States. The
airline was also the first to fly the ATR 72-500 aircraft in 1997 in India which
enabled it to offer better connectivity and reliable air links to interior cities and
towns. Seven months later, the airline became the first airline to fly the 737800 and also the first to fly the 737-700.
It has become the most preferred domestic airline in the country by providing
superior quality and reliable air travel in India. A high percentage of the
domestic air traffic comprises business travellers. The airline has also
focussed from the very beginning to emerge as the Businessmans Preferred
Airline.
In 1991, Government started Liberalization policy. While following Open Skies
Policy, they decided to allow private airlines to start operations under the Air
Taxi Scheme. In 1992, a company was formed and on 5 th May 1993, Jet
began its operations. It was a well-decided plan and it was not that one fine
day, launch of an airline was thought of. A lot of factors have played role in
making Jet reach where it is now. They had abusiness plan and they made
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best of the opportunities they got and it was also good luck which made them
successful.
In 1993, they made a business plan for first five years where it was decided to
lease few aircrafts and buy some aircrafts. In 1996, an agreement was signed
with Boeing under which 10 aircrafts (B 737-400, 700 and 800) were ordered
and had an option for another 10 which was confirmed later. It was
deliberately decided to have all Boeing aircrafts in the fleet because it helps to
maintain cost. Fortunately things worked out as per the business plan.
Since its first flight, the airline has become the largest private domestic airline
in India. The airline has witnessed tremendous growth-from 4 aircrafts in
1993-94 to a fleet of 43 classic and next generation Boeing 737400/700/800/900 aircraft, 3 A340-300E aircraft and 8 modern
ATR72-500 Turboprop aircraft in 2005-06, from 12 destinations in 199394 to 48 destinations that span the length and breadth of India and
beyond, including Colombo in Sri Lanka, Kathmandu in Nepal,
Singapore, Kuala Lumpur in Malaysia and London Heathrow, UK in
2005-06; from 24 daily flights in 1993-34 to 320 flights in 2005-06. All this has
helped Jet Airways to gain above 40 per cent market share. Since inception
in May 1993 until end-March 2006, Jet Airways has flown approx.
60.7 million passengers. With an average age of a little over 5.2
years, the airline has one of the youngest aircraft fleet in the world.
Approximately 30,000 passengers travel daily on Jet Airways.
Jet Airways has alliances with the following airlines:
British Airways
Lufthansa
KLM
Northwest Airlines
South African Airways
Qantas
Gulf Air
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Jet Airways also has check in arrangements in place with over 14
International airlines.
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Evolution of Jet Airways
Fig.2
Diagram showing Evolution of Jet Airways since its inception
Mission Statement of Jet Airways

Jet Airways will be the most preferred domestic airline in India. It will be the
automatic first choice carrier for the traveling public and set standards, which
other competing airlines will seek to match.
Jet Airways will achieve this pre-eminent position by offering a high quality of
service and reliable, comfortable and efficient operations.
Jet Airways will be an airline which is going to upgrade the concept of
domestic airline travel - be a world class domestic airline.
Jet Airways will achieve these objectives whilst simultaneously ensuring
consistent profitability, achieving healthy, long-term returns for the investors
and providing its employees with an environment for excellence and growth.
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Fleet of Jet Airways

Fleet of Jet Airways is probable the youngest with an average age of 5.3
years. The fleet is as follows:
Aircraft
No. in Service
737-800
737-700
737-400
737-900
ATR 72-500
A340-300E
A330-200
Total No.
22
13
06
02
08
03
01
55
Future Fleet Plan of Jet Airways is as shown in the figure below:
Fig.3
Figure showing the Fleet Plan.
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Now that we have seen the Evolution of Jet Airways over these years, we see
the S.W.O.T Analysis of Jet Airways.
SWOT Analysis of Jet Airways

SWOT Analysis is an acronym for Strengths, Weaknesses, Opportunities and
Threats. In the increasingly competitive industry, it is very important for any
company carry out this Analysis. SWOT Analysis of Jet Airways is as follows:
Strengths
Jet Airways believes the following are their principal competitive strengths,
which differentiates them from other airlines:
Focus on business travel.

Jet Airways technical service reliability is maintained at over 99%. This
compares with the best in the world and is a measure of their emphasis
on on-time performance and attention to safety. Jet Airways safety
record remains among the best in the industry worldwide.
Excellence in customer service.

Young fleet comprising limited types of aircraft.
Utilization of aircraft efficiently.
Continued investment in staff training and development
Strong brand and customer loyalty.
Motivated workforce and proven management team.
Young and modern fleet for safety, reliability and lower operating costs
Access to facilities at major airports and Convenient flight timings and
connections.
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Relentless focus on cost discipline

Extensive sales and distribution network.
Highest standards of corporate governance
Weaknesses
Jet Airways has only a limited number of suppliers for their aircraft and
engines. Any problem with these aircrafts, whether real or perceived,
could significantly harm their business.
Jet Airways relies on maintaining high daily aircraft utilization for their
revenues. High aircraft utilization also makes them vulnerable to
delays. If an aircraft becomes unavailable, they may suffer greater
damage to their service, reputation and profitability than airlines with
larger fleets.
Their failure to successfully implement their growth strategy would
harm the market value of their Equity Shares.
They rely heavily on automated systems to operate their business, and
any failure of these systems could harm their business.
Their maintenance costs will increase as their fleet ages.
The trading price of their Equity Shares may be affected by variations
in their results of operations.
There are a number of legal proceedings against the company, their
directors, their promoters and promoter group companies.
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Opportunities
High potential market: Only ~ 18 million air passengers.
Medium term GDP growth expectation at 8% p.a.
Medium term market growth estimates.
o Domestic traffic ~ 25% p.a.
o International traffic ~ 20% p.a.
Fig.4
Fig.5
Figure showing Domestic Growth rate.
Figure showing International Growth rate.
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Potential for Increase in Air Travel
Fig.6
Diagram showing the GDP growth and Trips per person in different countries
Here, we see the number of trips taken by a person in a year on the Y-Axis
and the GDP per capita in US$. India is hardly 0.02 trips per year. Thus, a
large market is still lying untapped. GDP Per Capita is low for India and China,
despite of a high GDP overall due to huge population.
Growth of the aviation sector is directly related to the overall growth of
the economy. In terms of purchasing power parity, India is the fourth
largest economy in the world. Additionally, our country has a growing
middle class which according to various estimates consists of over 300
million people with individual purchasing power of approximately Rs. 2
lacs per year.
Estimates by a large number of research bodies, supported by recent
data over the past few quarters, suggest that the domestic Indian
aviation market will continue to grow at above 20% each year over the
coming 3 to 5 years. As India's leading domestic airline, Company is
well placed to achieve growth rates that are in line with the market.
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Threats
Jet Airways operate in a very competitive industry.

Substantial
increases in fuel costs or the unavailability of sufficient
quantities of fuel would harm their business.
Lack
of airport infrastructure and facilities in India could adversely
affect the business.
There
are various restrictions under Indian laws and regulations
applicable to foreign investment in a domestic airline.
The airline industry in India is subject to extensive regulation. Changes

in government regulation imposing additional restrictions on their
operations could increase their operating costs and result in service
delays and disruptions.
Exchange rate instability may adversely affect their financial condition

and results of operations.
The
airline industry is characterized by low profit margins and high
fixed cost obligations, and Jet Airways may be unable to compete

effectively with other airlines with greater financial resources or lower
operating costs.
Their reputation and financial results could be harmed in the event of

an accident or incident involving their aircraft.
Airlines
are often affected by factors beyond their control, including
traffic congestion at airports, weather conditions, bird hits, increased

security measures, natural disasters and epidemics, any of which could
harm their operating results and financial condition.
The airline industry tends to experience adverse financial results during

general economic downturns.
Insurance cover is unavailable for certain risks or may be inadequate.
- 23 -
Insurance
costs for airlines increased substantially as a result of the
September 11, 2001 terrorist attacks in the United States, and further
increases would harm their business.
Their performance is linked to the stability of policies and the political

situation in India.
Terrorist
attacks or war or conflicts involving India or other countries
could adversely affect business sentiment and the financial markets

and adversely affect their business.
Their
business is dependent on the Mumbai airline market and a
reduction in demand in this market could harm their business. Also,

any interruptions or disruptions at the Mumbai airport or at any of their
other hubs could harm their business.
- 24 -
Budgeting by Jet Airways

Level of Operations:
What is the current fleet size?
The marketing department conducts the survey.
Should they increase their fleet?
How many more aircrafts should be added to the fleet?
Should they increase the frequency of the existing sectors or should
they introduce new sectors?
Should they hire or buy the aircraft?
What type of aircraft should they hire or buy?
Which aircraft should they return if the maturity period is over?
The planning to increase the fleet is done on monthly basis
The company will keep on adding new aircrafts until the total of all
sectors is making profit. For instance say 150 sectors are making
profits, 50 are making losses and 75 sectors are break even. The
company will still increase the fleet until the total of all routes are
making profits.
But its not always the profitability that is the concern for Jet
Airways, or for that matter any Airlines. Sometimes there are
government
compulsions
to
operate
on
certain
sectors,
irrespective of the company making losses. For instance, some

capacity should be available for the north-eastern sector like
Assam.
Some unforeseen incidents also affect the budgeting cycle. For
instance, due to the 9/11 incident the passengers were terrified
and Jet Airways suffered losses and due to this they had to
downsize the work force.
- 25 -
Income Budget:
Operating Revenues Budget:
Marketing department gives the estimation for increasing the fleet size.
They see what fares competitors are offering.
For instance, Indian Airlines. What fares Jet Airways can offer are
generally in tunes with those other competitors. Jet has various
schemes like concession of fares, apex fares and etc.
Based on these facts, they determine the yield. They do not determine
the fares.
What is yield?
As mentioned above, they have different fares in the same sector. Also
they have two classes in each sector.
Class
L class
Q class
S class
K class
H class
N class
Rates
5220
4120
3320
2620
2120
6520
TOTAL
No. Of seats
8
10
15
30
34
7
104
Budgeted yield = 329080 / 104

= 3165
For instance,
We consider Mumbai Delhi sector
- 26 -
Total Revenue
41,760
41,200
49,800
78,600
72,080
45,640
3,29,080

Aircraft capacity 130 seats
Budgeted Seat factor 80% = 104 seats
Budgeted Yield = 3165
Budgeted Total Revenue = Budgeted Seat Factor x Budgeted Yield x 365
days(1year)
= 104 x 3165 x 365
= Rs. 12,01,43,400
This Budgeted Total Revenue is only for a single sector i.e. Mumbai
Delhi.
Jet Airways has more than 275 such sectors.
- 27 -

Non Operating Revenue Budget:
Jet Airways analyses the profits made by the company on a monthly
basis.
It takes into account the least margin of profit made by the company in
the year.
For instance:
o January INR 150 crores
o February INR 70 crores
o March
INR 90 crores
o April
INR 170 crores
Here we see that the company makes the least profit in the month of
February.
Therefore, the company is sure to make a minimum profit of 70 crores.
This amount is deposited in the bank or invested in mutual fund or
reinvested into the business if the return on investment is higher than
the rate of interest given by the bank, provided there is a scope for
reinvestment in the business.
The major source of Non Operating Revenue is the interest earned on
investment.
The company has also invested in Simulator. Jet Airways gives the
simulator to other companies on lease, when not in use.
This is a revenue generator for the company, though at a miniscule
level.
- 28 -
Expenditure Budget:
Employees Remuneration and Benefits Budget:
The Human Resources Department takes decisions regarding the
addition in the workforce.
Firstly, the existing employees are catered to. Each department
determines the addition to be made to the number of employees in
their department.
This is done based on the analysis of Level of Operation.
Each department also specifies the grade of the employees it seeks to
employ. For example, Skilled, Unskilled, Technical, Officer, etc.
Accordingly their salaries are also budgeted based on the grade.
If the company is planning to open a new station, it needs to set up a
new office in that station. Here the company needs staff; Ground staff,
Clerical staff, Pilots, etc.
If the company is only looking to increase the frequency of the existing
sectors, it should employ more Pilots. The employment of pilots is
directly related to the number of Aircrafts.
Every year, the wage rate increases. Also, the head count increases.
But, at the same time there is outflow of workforce also, by way of
Scheduled retirement, VRS or may be Head-hunting.
Thus, while budgeting the Headcount, both the flows have to be taken
into consideration i.e. Inflow and Outflow.
- 29 -

For instance,
Existing
Additional
Grade
Number
Unskilled
employees
1500
2,000
Managers
50
25,000
Pilots
55
65,000
Air-hostess
Total
Grade
of Salary
100
40,000
1705
12,825,000
Number
of Salary
employees
Unskilled
20
2,000
Managers
25,000
Pilots
65,000
5
30
40,000
445,000
13,270,000
Air-hostess
Total
Total
So, here we saw how the increase in fleet increased the expenditure of the
company on the Employees Remuneration.
- 30 -

Aircraft Fuel Expenses Budget:
Jet Airways owns different types of Aircrafts
o Boeing 737-400
o Boeing 737-700
o Boeing 737-800
o Boeing 737-900
o ATR 72-500
o Airbus 340-300E
Each Aircraft has different fuel consumption.
Fuel constitutes more than 30% of the Total Expenditure.
The estimated expenses on Fuel are carried out by Historical data.
Average Consumption for each Aircraft type for each sector per hour is
calculated.
Fuel rates are determined by the Government. It fluctuates. Currently,
its Rs.42/- per litre.
For example,
Sector: Mumbai-Delhi
Average consumption per hour: 2450 litres
The time taken by aircraft to reach Delhi: 1 hr 45 mins i.e. 1.75 hours
The flight is in operation for the full year i.e. 365 days
So, Fuel Expenses of Mumbai-Delhi sector = Avg. Consumption per
hour x
Total hours x Rate of Fuel x No. of days
= 2450 x 1.75 x 42 x 365

= Rs. 65,727,375
This is cost of only one sector.
There are more than 275 such sectors.
- 31 -

Selling & Distribution Budget:
Marketing Department takes the decisions regarding the Advertising
and Sales Promotion.
Jet Airways pays commission to agents who get the customers for
them. In fact, this is done by all the companies in this Industry.
This commission is fixed, based on the sale of tickets. Currently, its
9%.
Out of 9%, 6 % goes to the Travel Agents and the remaining 3% goes
to GSAs.
The agents pay the cheque to the company after deducting their 9%
commission on the sale of tickets.
They pay the cheque on fortnightly basis.
The cheque for sales from the 1 st day to the 15th day is paid on the 25th
day of the month and of 16 th day to the last day on 10th day of the next
month.
In 2006-2007, Jet Airways has spent more on Advertising and Sales
Promotion than the previous years due to increasing competition. And,
this expenditure is expected to rise further in 2007-2008 as many new
players will jump into the Aviation Industry.
- 32 -

Aircraft Acquisition Budget:
This Budget includes three components :
o Aircraft Lease Rentals
o Depreciation
o Interest
If the company leases an Aircraft, it has to pay leaser a fixed amount
as per the agreement at the agreed period cycle.
The cost of one Aircraft is INR 40 million- 100 million.
So, the company generally does not buy it from its own funds.
It borrows loans from Banks. So, the company has to pay interest on it
every month.
The Aircrafts also depreciate over the period of time.
Jet Airways follows Written down Value (WDV) method.
The rate of Depreciation is in tune with the Schedule 6 of the
Companies Act.
Apart from charging Depreciation to Aircraft, company also charges
Depreciation on its other Fixed Assets.
- 33 -

Other Operating Expenses Budget:
This Budget is divided into mainly two parts:
1. Aircraft Maintenance Budget
2. Insurance Budget
1. Aircraft Maintenance Budget:
Maintenance is also sub-divided into : (i) Contract (ii) In-house
(i) Contract
o Checks are done : every hour, every day, every week, every
month, every 400 hours, every 4,000 hours, and every 16,000
hours.
o All the checks are different in magnitude.
o If an aircraft goes for a check when it attains 4,000 hours, it has
been checked 10 times with the procedure followed to check
when it attains 400 hours. Similarly, when it attains 16,000
hours, its checked 40 times that of 400 hours and 4 times that
of 4,000 hours.
o These checks are made in four major areas : Frames, Engines,
Auxiliary Power Units (APU), and Landing Gears.
o Till 4,000 hours company does the checking internally.
o But, for 16,000 hours, Jet Airways enters into contracts with
other companies.
o There are different companies for different areas like Frames,
APUs, etc.
o The guidelines for these checks are laid down by the Director
General of Civil Aviation (DGCA). No discrepancies in checks
are tolerated.
(ii) In-house
o All the minor maintenance is done by the company in-house. Its
only the major maintenance checks which are contracted to
other companies.
- 34 -

2. Insurance Budget:
In Aircrafts, Insurance is a huge Expenditure.
If an Aircraft meets with an Accident, the whole burden of loss is borne
by the Insurance Company.
Insurance is on the basis of the value of Aircraft.
The Insurance rate is also negotiable.
The rate also depends the age of the Aircraft.
Jet Airways has the youngest fleet with an average of 4.6 years.
Over the years, if company has not claimed Insurance, it gets the
advantage of No-Claim Bonus.
Jet Airways enjoys better rate than all it competitors.
This is how we come to Budgeting of various items in Income and

Expenditure account of Jet Airways.
While doing Budgeting for every year, the Inflation is also taken into
consideration since the value of money falls every year.
- 35 -
Responsibility Centres
Jet Airways has only two responsibility centres:
1. Profit Centre
2. Cost Centre
1. Profit Centre
Jet Airways have invested in a Simulator. This is their Fixed Asset. A
Simulator is a computer program that simulates a real-world situation.
In this case, it emulates a Cockpit. It is for Learning Pilots. They have
different foregrounds and situations. The Pilots and the Cabin Crew is
taught how to act in varying conditions.
Jet Airways gives their Simulator to other companies on rent.
For Jet Airways, their Profit Centre is their Routes and the Simulator.
2. Cost Centre
For Jet Airways, their Cost Centres are their Departments like
Marketing, Finance, Operations, etc.
- 36 -
Cash Flow
The Cash Flow for Jet Airways comes in many ways.
On a monthly basis, the Operating Revenues are calculated.
The Fuel Expenses are paid in advance.
Aircraft Lease Rent is fixed and paid on monthly basis.
Other Operating Expenses and Incomes are given a 30 days credit.
Revenue from agents flow on a fortnightly basis. For first 15 days, on
25th day of the month and for the remaining days of the month, 10 th day
of the next month.
Sometimes, due to the credit availability, it may happen that in a month
where you have made profits, there is not much Liquidity and in a
month when you have less Liquidity, it is showing profits.
For instance, if the company expects the Revenue in the month of
January, but the creditor is allowed 30 days credit period. So, in
January even though you have made profits, there is no Cash flow.
Other way round, in February, your Revenue expectation may not be
that high, but the Revenue of previous month flows this month. So,
even though the company is not generating Revenue, Cash flow is
generated and vice-versa.
- 37 -
Sensitivity Analysis
Though the company budgets the income and expenditure accounts,

variances should be taken into consideration.
For this purpose the company does sensitivity analysis while preparing
the budget.
The company generally considers 6 sensitivities: 3 positive and 3

negative.
Jet Airways concentrates on three main areas for the Sensitivity

Analysis: Yield, Seat factor, Fuel cost.
The budgeted revenues are a function of seat factor and yield.
1. Yield
The yield could change.
If due to any reason if the occupancy rate increases or decreases, the
yield fluctuates respectively.
Changes in the yield will bring about changes in the operating revenue
and the profits.
2. Seat Factor
If the budgeted seat factor fluctuates, it will have a direct effect on the
yield, operating revenue, profits, commission to the agents (selling and
distribution expenses), etc.
3. Fuel price
Fuel prices occupy more than 30% of the total expenditure. So, even a
slight increase or decrease in the fuel prices will have a drastic effect
on the expenditure and profits.
It has the capacity to make a profit making company incur huge losses.
- 38 -

We shall see the Sensitivity Analysis for Fuel. In the current fiscal, company
incurred INR 167,893 lacs on Aircraft Fuel Expenses. In the current fiscal the
average fuel price was Rs.36/-. This has already increased to around Rs.42/now. So, in the current year, company will incur even more expenditure on
Fuel and accordingly Profits shall also shrink and the Fuel Expenses in the pie
of Total Expenses shall increase. We shall now do Sensitivity Analysis taking
the Current Expenditure on Fuel. Firstly, 3 positive sensitivities (prices going
up-right) and then 3 negative sensitivities (prices going down-left) will be
considered.
Here, 1 Sensitivity has been taken as 10% of the Expenditure. 0 is the origin
and thus the actual figure, based on which calculation is done. All the figures
are in INR lacs.
Fig.7
Line Graph showing different Sensitivities
This is a very useful tool while budgeting by any airlines. This is done for Fuel
costs. Similarly for any Cost-driver, Sensitivity Analysis can be done to know
the Alternative plans to be adopted.
- 39 -
Capital Budgeting
When the company plans to make an addition to the fleet, it has to

make two decisions:
1. Whether to increase the frequency of existing sectors
2. Introduce a new sector or station
1. Increasing the frequency of existing sectors

Here the company has to invest in Push Back Trolleys (staircase
to get into the aircraft), vehicles to get the passengers from the
airport to the aircraft.
For instance: If one flight on Mumbai Delhi sector has been added
for daily operations and three rather than two flights operate on the
same sector at the same time, the company cannot ask passengers
of the newly added flight to wait until the passengers of existing
flights get into the aircraft.
The company has to invest in vehicles to carry Cargos.
2. Introducing a new sector or station
Here the company has to invest in vehicles and Push Back
Trolleys. Alongside this investment, the company also has to set up
a new office and also furnish it.
They may also have to invest in the runway.
- 40 -
Variances
Jet Airways calculates the variance on the basis of the difference
between the actuals of current year and the budgeted accounts for
the next year.
The variance may not always be positive, it can be negative also.
But the net variance is always positive.
In Jet Airways, since the budgets are reviewed on a monthly basis,
it is easier to calculate the variance.
If there is a consistent negative variance, it calls for an investigation
to check whether the flaw is in the budget or the functioning of any
department or any sector or any station.
Then the long term vision is taken into consideration. If it reveals
that a particular sector is bound to make losses, that sector may not
be operated in future.
Jet Airways has so far been able to maintain a reasonable level of
efficiency as regards Budgeting. As a result of which, there is not
much a scope for Variances.
- 41 -

Comparative Company Operating Parameters of Jet Airways (India) Ltd.
For the Years Ended 31-03-05 & 31-03-06
Apr 05-Mar 06
Apr 04-Mar 05
104,833
96,417
8,416
8.7%
ASKms Million
13,300
9,808
3,492
35.6%
RPKms Million
9,576
6,992
2,585
37.0%
72.0%
71.3%
9.56
8.14
1.14
17.4%
5,394
4,904
490
10.0%
49.5
41.3
8.2
19.9%
8,285
7,082
1,203
17.0%
10.2
10.2
0.0
0.0%
Operating Parameters
Number of Departures
Passenger Load Factor %

Revenue Passengers (Million)
Average
Gross
Revenue
per
passenger in INR
Average Fleet size during period
Average Head Count (Gross)
Aircraft Utilization
Change
Change(%)
0.7 pts
During 2005-2006, air travel in India continued to show a strong

growth, both domestic and international.
Jet Airways carried 9.56 million revenue passengers, an increase of
17.4% over the Previous Year. Revenue Passenger Kilometres
(RPKms) grew by 37% to 9,576 million and so has ASKms. However,
Revenue/RPKms have reduced due to increased competition and
Cost/ASKms increased due to high fuel prices and increased fleet.
- 42 -

Comparative Income Statement of Jet Airways (India) Ltd. for the Years
Ended 31-03-05 & 31-03-06
Particulars
INCOME
Operating Revenues
Non-Operating Revenues
Total Revenues
EXPENDITURE
Employees
Remuneration
Benefits
Aircraft Fuel Expenses
Selling & Distribution Expenses
Other Operating Expenses
Aircraft Lease Rentals
Depreciation
Interest
Total Expenditure
&
Apr 05-
Apr 04-
Change
Change
Mar 06
Mar 05
569,373
44,174
613,547
433,801
8,216
442,017
105,572
35,958
191,530
24.33
437.68
43.33
56,715
37,474
19,241
51.35
167,893
77,402
131,111
43,399
40,641
24,160
541,321
105,173
55,906
94,325
19,857
45,700
25,369
383,804
62,720
21,496
36,786
23,542
(5,059)
(1,209)
157,517
59.64
38.45
39.00
118.58
(11.07)
(4.71)
41.04
(%)
PROFIT BEFORE TAXATION
72,226
58,213
14,013
24.07
Provision for Tax
27,022
19,014
8,008
42.12
PROFIT AFTER TAXATION
45,204
39,199
6,005
15.32
Comments
Total Revenues of Jet Airways has increased by 43.33% from INR
442,017 Lacs in 2004-2005 to INR 613,547 Lacs in 2205-2006.This
increase was primarily due to the increase in passenger and cargo
revenues as well as non-operational revenue from the sale and
leaseback of aircrafts.
Non-Operating Revenues for the company increased by 437.68%. The
principal reason was the sale of five of the companys aircrafts in
March 2006. The other reasons for this increase are interest earned on
bank and other deposits increased during the year, Huge Profits on
- 43 -

Sale of Investments and may be higher Cancellation charges collected
in 2005-2006 as compared to previous year.
Employee Remuneration & Benefits increased by 51.35%. This may be
due to the increase in the Head count from 7,082 to 8,285 and to meet
the Operational requirements, the company employed expatriate pilots
on short-term contracts. There is also an increase in the General wagerate.
Fuel costs have increased by 59.64%. This increase is due to
increased Fuel rates over the last fiscal. Also, the fleet has been
expanded which means increased consumption of fuel. Increase in fuel
rate will be explained with the help of a diagram below:
Fig.8
Graph showing the Impact of Fuel rate.
Moreover, fuel constitutes a major pie of the Total Expenses for any
Airline Company. Share of each expense as a percentage to the Total
Expenditure is shown with the help of a pie chart below:
- 44 -

Fuel
Selling Expenses
8%
24%
Aircraft Lease Rentals
8%
4%
Other Operating Expenses

Depreciation
10%
14%
Interest
Payroll
32%
Fig.9
Pie-Chart showing the share of various Expenses
Here, we notice that Fuel Expenses constitutes the major chunk for Jet
Airways at 32%, followed by Aircraft Lease Rentals at 24% which is
due to sale and lease back of five aircrafts.
Selling & Distribution have increased by 38.45%. Commission to
General Sales Agents (GSA) and Travel Agents are directly
proportional to the sale of tickets. Thus, due to increase in Passengers,
the commission paid has also increased. Also, the advertising
expenses for the launch of international operations to Singapore,
London (Heathrow) and Kuala Lumpur have been incurred in the
current fiscal.
Other Operating Expenses have increased by 39%. This can be due to
increase in maintenance and repair costs due to increase in fleet size
during the year. Landing, navigation and other airport charges may
have increased due to expansion of international operations. The costs
of Insurance and in-flight amenities must have also increased due to
increased competition.
Aircraft Lease Rentals have also increased by 118.58% due to the
induction of more leased aircrafts during the fiscal 2006, including
wide-bodied aircrafts for long-haul international operations.
- 45 -

Depreciation has decreased by 11.07% due to reduction in the written
down value of aircrafts and other assets being depreciated. Also, five
aircrafts were sold and leased back.
Interest has also decreased by 4.71% due to decrease in average
indebtedness. The company has also redeemed the Subordinated debt
fully. The Unsecured Loans generally carry lower interest rates. So, its
a combination of both the things that have effected this decrease in
Interest.
Profit Before Tax has increased by 24.07% since the Revenues have
increased more than proportionately than the Expenditure. Due to
higher Profits, Taxes have also gone up.
Profit After Tax has also increased as a result of all the above
activities.
- 46 -

Comparative Summarised Balance Sheet of Jet Airways (India) Ltd As
on 31-03-05 & 31-03-06
Particulars
As on
As on
Change
Change
31-03-06
31-03-05
a) Equity Share Capital
8,633
8,633
0.0
b) Reserves & Surplus
221,955
230,588
192,383
201,016
29,572
29,572
15.37
14.71
33,411
(33,411)
(100)
20,602
6,000
14,602
243.37
468,958
489,560
257,073
263,073
211,885
226,487
82.42
86.09
32,066
521,626
19,485
282,558
12,581
239,068
64.57
84.61
752,214
516,985
235,229
45.50
a) Gross Block
437,206
520,209 (83,003)
b) Less: Depreciation
c) Net Block
224,958
212,248
259,346 (34,388) (13.28)

260,863 (48,615)
(18.64)
d) Capital Work-in-Progress
266,567
(%)
I. SOURCES OF FUNDS
Shareholders Funds:
Total Shareholders Funds

Borrowed Funds:
Subordinated Debt
Loan Funds:
a) Secured Loans
b) Unsecured Loans
Total Loan Funds
Deferred Tax Liability
Total Borrowed Funds
TOTAL FUNDS EMPLOYED
II. APPLICATION OF FUNDS
Fixed Assets:
Total Fixed Assets

Investments
Current Assets,
478,815
18,723
Loans
3,202
(15.96)
263,365
8,225.02
264,065
214,750
159,573 (140,850)
81.33
(88.27)
&
Advances:
a) Inventories
40,525
33,252 7,273
21.87
b) Sundry Debtors
43,315
25,231 18,084
71.67
c) Cash & Bank Balances
210,425
122,424 88,001
71.88
d) Loans & Advances
113,488
407,753
23,533 89,955
204,440 203,313
382.27
99.48
Total Current Assets

Less: Current Liabilities
&
- 47 -

Provisions:
a) Current Liabilities
b) Provisions
Total Current Liabilities
Net Current Assets
TOTAL FUNDS UTILISED
106,562
77,317 29,245
37.83
46,515
33,776 12,739
153,077 111,093 41,984
37.71
37.80
254,676
752,214
172.83
45.50
93,347
516,985
161,329
235,229
Comments
The Share Capital of the Company has remained the same. Company
only has Equity Share Capital, since Preference Shares have been
redeemed fully.
Reserves and Surplus of the company has increased by 15.97%, which
is a very good sign. The Reserves include: Capital Redemption
Reserve, Share Premium, Revaluation Reserve, Contingency reserve,
General Reserve and the Surplus Balance in Profit & Loss Account.
Despite of such high Reserves, there is no Bonus Issue planned in the
near future. This may be because the Market Price of Shares is already
low. Issuing Bonus Shares would bring further decrease.
Overall, there is an increase of 14.71% in the Shareholders Funds.
The company had raised a Subordinated Rupee Debt from
Infrastructure Development Finance Company Ltd. (IDFC). This
Subordinated Debt has been redeemed in the year 2005-2006.
The company has raised Secured Loans through Bank and from
Financial Institutions against hypothecation of Simulator, stocks,
Debtors and Movable Fixed Assets other than Aircraft. Secured Loans
have increased by 243.37%.
Jet Airways has also raised funds through Unsecured Loans through
Banks and other Financial Institutions. Unsecured Loans have
increased by 82.42%.
Total Loan Funds have increased from Rs.263,073 Lacs to Rs.489,560
Lacs i.e. 86.09%.
Deferred Tax Liability is the Tax that is due but not paid. This can be in
the form of Sales Tax holiday for a specified time or Unabsorbed
- 48 -

Depreciation. Deferred Tax Liability has increased by 64.57%.
However, Deferred Tax Liability forms a small portion of Owed Funds
6.15%.
Total Borrowed Funds have increased by 84.61% over Shareholders
Funds increase of 14.71%. Thus, we see that Jet Airways is highly
leveraged. However, the Interest has fallen by 4.71%. This may be due
to redemption of Subordinated debt.
As regards Application, Gross Block of Fixed Assets have gone down
by 15.96%. This is mainly due to sale of five Leased Aircrafts, thus
capital expenditure on them has also gone down. This is also reflected
through lower Depreciation. As a result Net Fixed Assets have also
gone down by 18.64%.
Capital Work-in-Progress has increased by a phenomenal 8225.02%.
This may be due to the investment in the factory building.
Investments worth INR 140,850 Lacs have been sold. This also forms
a major part of increase in Non-Operating Revenues.
Inventories have increased by 21.87%. The main items of Inventories
are Rotables, Consumable store and tools, Fuel and other Stores items
for Jet Airways. Here, the company might have purchased more of Fuel
and stored, speculating a further increase in Fuel price.
Debtors have increased by 71.67%. This shows lenient Credit Policy by
the Company.
Cash & Bank Balances have increased by 71.88%. A major reason for
this increase can be the Escrow Account opened for executing Share
Purchase Agreement (SPA) for acquisition of Air Sahara.
Loans & Advances have increased by 382.27%. These can be
Deposits with Airport Authorities and Customs Authorities. This can
also include the Advance Tax. Since the fleet has expanded, Deposit
might be given for addition parking bays and since the Net Profit has
increased this year, the Advance Tax also has gone up.
The Current Assets for the year have shown a growth of 99.48%.
The Current Liabilities have increased by 37.83%. These include the
Sundry Creditors, Current Account overdrawn or Unclaimed Dividends.
- 49 -

Provisions include Income Tax, Wealth Tax, and Proposed Dividend
among others. Provisions have increased by 37.71%. With the
increase in Profit Before Tax, Income Tax also increases. This year,
company has proposed a dividend of 60%. Fringe Benefit tax has also
been levied this year.
Current Liabilities has increased by 37.80%.
This is much less as compared to an increase of 99.48% in Current
Assets. Due to this, Net Current Assets have increased by a
phenomenal 172.83%. This shows that the company will be able to
meet all its Current Liabilities.
- 50 -
Calculation of Important Ratios for 2005-2006

Net Profit Ratio = Net Profit x 100 / Net Sales (Revenues)
= 45,204 x 100 / 613,547
= 7.37%
This ratio indicates the Net Margin on Sales after deducting Interest, Tax and
Depreciation.
Current Ratio = Current Assets / Current Liabilities
= 407,753 / 153,077
= 2.66 : 1
This ratio evaluates Short-term solvency. Jet Airways is in a good position to
meet its Short-term Liabilities
Debt-Equity Ratio = Long-Term Debts / Total Funds
= 489,560 / 230,588
= 2.12 : 1
This ratio indicates the Capital Structure of a company. Jet Airways is a highly
geared company wherein high use of Leverage is done.
Proprietary Ratio = Shareholders Funds x 100 / Total Assets
= 230,588 x 100/ 752,214
= 30.66%
This ratio is the index of conservatism in Capital Structure. As already
mentioned earlier, there is more use of Debt than Equity for increasing the
returns to Shareholders.
Net Operating Profit Ratio = Operating Profit x 100 / Net Sales
= 273,902 x 100 / 613,547
= 44.62%
This ratio is the index of operating efficiency. Jet Airways has been able to be
efficient in its operations.
- 51 -

Return on Capital Employed = Net Profit (Before Interest & Tax) x 100 /
Total Assets
= 96,386 x 100 / 752,214
= 12.81%
This ratio indicates the earning capacity and optimum utilization of funds.
Thus, it shows that the Investors money is utilised properly in Jet Airways and
the return is also pretty higher than the opportunity cost.
Return on Equity Share Capital = Net Profit (After Tax) x 100 / Paid-up
Equity Share Capital
= 45,204 x 100 / 86,330
= 52.36%
This ratio is an indicator of the Return on Equity Capital and valuable guide to
an investor.
Earning Per Share = Net Profit / Number of Equity Shares
= 45,204 / 8,633
= 5.23
This ratio shows the capacity of the company to pay Dividend to Equity
Shareholders.
Price Earning Ratio = Market Price per Equity Share / Earning per
Equity Share
= 971 / 5.23
= 186 times.
This ratio indicates whether the Shares are under-valued or over-valued. Jet
Airways Shares are undervalued since the Market Price is lower than the
price at which Shares were issued.
Dividend Payout Ratio = Dividend per Equity Share / Earning per
Equity Share
= 6 / 5.23
= 1.14 : 1
- 52 -

This ratio indicates the portion of Earning used for payment of Dividend and
the portion of Earning retained. Since the ratio is more than 1, it shows that its
more than the Earnings itself.
Debt Service Ratio = Net Profit (Before Interest & Tax) / Interest
= 96,386 / 24,160
= 3.99 times
This ratio shows the ability of the company to pay Principal amount and
Interest. Jet Airways has an excellent Debt-Service Ratio of nearly 4 times.
Important Expense Ratios = Expenses considered x 100 / Net Sales
These ratios are important to know the directions in which economies ought to
be. The important Expense ratios for Jet Airways are as follows:
o Employees Remuneration Ratio = 56,715 x 100 / 613,547
= 9.24%
o
Aircraft Fuel Expenses Ratio = 167,893 x 100 / 613,547

= 27.36%
Selling & Distribution Expenses Ratio = 77,402 x 100 / 613,547

= 12.62%
Other Operating Expenses Ratio = 131,111 x 100 / 613,547

= 21.37%
Aircraft Lease Rentals Ratio = 43,399 x 100 / 613,547

= 7.07%
- 53 -
Information about IPO and Post IPO

Initial Public Offer (IPO) in February 2005.
The
Price Band was INR 950 to INR 1,125 for each share with Face
Value of INR 10.
Offer Price INR 1,100 per share.

Oversubscribed over 16.2 times.
Total amount raised INR 15,669 million.
Total Market capitalization over INR 110,000 million (USD 2.5 billion).
Jet Airways has proposed a Dividend of Rs.6/- i.e. 60% for the year. But, still
the Equity Shareholders are not happy with the performance of the company.
This can be shown with the help of Diagrammatic Representation:
Fig.10 Graph of Share Price of Jet Airways as against the Sensex.
In the figure, Blue line shows the Trend of Jet Airways, whereas Yellow Line
shows the Trend of Sensex. We see some of the reasons why the
Shareholders are not happy:
The Shareholders have paid a premium of Rs.1,090/- per share. So,
when they get 60% Dividend, it looks good on the papers only.
- 54 -

The company reached its all time high of 1,268 only once after, which it
has consistently fallen. It becomes a fad rather than a trend after that
period.
When the shares were issued, the Sensex was very low, which then
rose, falling once, but now the Share market is doing good as
compared to Jet Airways. It shows the volatility of shares.
The Beta i.e. the co-efficient is less than 1, since both the graphs are
moving in opposite directions.
Some reasons for the fall in Share Prices of Jet Airways can be:
o Increased competition since 2005.
o Failure to execute the Jet Airways-Air Sahara deal.
o The Financial performance of the company is not up to the
mark.
The chart below shows the Volume of Shares of Jet Airways traded in the
market. The Blue bars indicate Purchase of Shares and the Red line shows
the Sale of Shares. This also is falling constantly.
Fig.11 Graph showing the Volume of Shares Traded.
Over the period, the Shares have certainly lost its value. The Shares reached
its all-time high on January. Before and After that Shares have been traded at
minimum level. In the period between 8/11/05 and 4/1/06, there is trade in
shares of negligible volume.
- 55 -
International Operations
Sector-wise Seat Factors
SECTOR
SAARC
Q1
Q2
Q3
Q4
FY 06
65.2
74.2
68.1
69.7
67.7
48.3
73.2
75.7
69.5
67.8
BOM-SIN-BOM
66.3
50.9
66.9
61.6
61.2
MAA-KUL-MAA
67.2
63.6
71.3
69.2
67.6
38.6
37.8
37.8
59.2
73.1
69.6
72.7
70.2
61.8
68.1
46.8
62.4
65.2
65.9
57.6
65.0
MAA-CMB-MAA
DEL-KTM-DEL
ASEAN
MAA-SIN-MAA
UK
BOM-LHR-BOM
DEL-LHR-DEL
TOTAL
International Operations: Update

Established routes in the process of maturing
o SAARC operations are profitable.
o Mumbai-Singapore and Chennai-Kuala Lumpur profitable.
Mumbai-London and Delhi-London continue to incur start-up losses
due to lower yields.
Pressure on yields
o Aggressive fare discounting by incumbents on all routes.
o Significant capacity induction by competitors, particularly on the
UK routes.
Pressure on costs
o High Fuel prices.
o Under-utilization of A-340 300E aircraft: impact of USD 1.7
million for Q4.
- 56 -
International Operations: Turnaround

Improved utilization of aircraft.
o Additional London frequencies.
o New frequencies in ASEAN routes.
Focus on increasing load factors.
o Seasonal imbalances to be mitigated through advance planning
of inventory.
o New corporate deals in international markets.
Emphasis on increasing J class seat factor.
Focus on established markets.
Increase in cargo revenue component.
o Directional
imbalances
to
infrastructure / logistics.
- 57 -
be
corrected
with
improved
Jet-Sahara Deal
Among all the airlines today, Jet Airways is supposed to be the market leader
who has a market share of above 30%. This was before the deal with Air
Sahara. After the deal it could become an undefeatable market leader having
market share of above 50%, surpassing the state-owned airline Indian Airlines
which has a fleet of 90 aircrafts. But this deal seems to have hit rough
weathers. The two major events that have brought a stir in the Aviation
industry are listed below:
New Delhi, January 19: In a landmark deal, private airlines Jet Airways on
Thursday announced acquisition of Sahara Airlines to become the largest
domestic carrier in India.
The board of directors of the company at its meeting held January 19, 2006,
has considered and approved, subject to receipt of regulatory approvals as
maybe required, the acquisition by the company of 100 per cent of the fully
paid up equity share capital of Sahara Airlines," Jet Airways said in a
communication to stock exchanges.
Jet Airways, however, did not disclose the amount for which the company
acquired Sahara Airlines. According to informed sources, Jet Airways clinched
the deal for an estimated amount of over Rs 2,300 crore.
Officials from either side were inaccessible for comments.
Sources said, the deal was signed late last night by Air Sahara vice-president
Alok Sharma and Jet Airways executive director Saroj Datta after Naresh
Goyal flew in to Lucknow to join Sahara group chief Subrata Roy.
This takeover, details of which are still awaited, would help Jet raise its market
share to about 50 per cent of domestic aviation traffic.
-Source: www.expressindia.com
- 58 -

New Delhi, Tuesday, 20 June, 2006: The first airline merger between Jet
Airways and Air Sahara is in the danger of falling apart, as the latter
toughened its stand on Tuesday against Jet's proposal for revaluation of the
Rs 2,300 crore deal -- escrow account for which is set to expire in less than
24 hours.
Even as the civil aviation industry spent the whole day speculating whether or
not the deal would come through, Air Sahara President Alok Sharma broke
the silence late in the evening, saying that it would not renegotiate the deal
struck with the Jet Airways on January 19, 2006.
Though there were no specific communication from Jet Airways, feelers were
coming from that side about a cut of 10 to 20 per cent of the agreed deal
amount, he said.
"In term of renegotiation, we did get some feelers how to go about
renegotiation. We have completely turned down this at least on the pricing
part of it," Sharma informed a news channel.
However, he said, Air Sahara was willing to grant another extension of 15
days for the share purchase agreement to materialise. But if the deal falls
apart, Sahara would operate the carrier on its own from the day after, Sharma
said.
Amid the uncertainty over the takeover of Air Sahara by Jet Airways, Union
Home Ministry said it would take a decision on various issues, including
security aspects, on Wednesday.
"Totality
of
several
factors
are
being
examined
including
security
clearance.The matter is under consideration and a decision... Taken

tomorrow," a Home Ministry official said.
Central security agencies had cleared the name of Naresh Goyal two months
back and the file had been sent to the Union Home Ministry for further action.
- 59 -

"We are still waiting for all regulatory approvals to be in place" was all Jet had
to say.
-
Source: www.sify.com
The Rationale behind this Acquisition

Strong platform for future growth.
Opportunity to take advantage of meaningful synergies.
Similar business model.
Access to skilled and trained airline employees, of which, there is a
significant shortage in India.
Infrastructure / facilities maintenance, spare parts utilisation, parking
bays and departure slots.
Cost savings from enhanced economies of scale.
Highlights
Jet is assuming Air Saharas operating leases and, subject to
Government approvals, parking bays, departure slots and airport
infrastructure.
Jet is not assuming any of Air Saharas liabilities incurred prior to
January 18, 2006, any liabilities associated with cricket sponsorship or
any of Sahara Airlines helicopters or business jets.
City office premises to be reviewed on case by case basis.
Until approvals are received, both companies will continue to function
independently.
S2 will continue to be managed and run by its current management.
Major decisions will be taken on a consultative basis.
- 60 -

Air Sahara name and logo to be phased out gradually.
- 61 -
Jet Airways- Air Sahara Synergies

Key operational Parameters
Fleet Size
Fleet Type
53
B737, ATR
27
B737, CRJ-200
Destinations served
A340-300
43 + 5
B-767
23 + 5
(+ International)
Flights/Day (Scheduled)
315
Seats/Day
40,000
Passengers Carried/Day
28,000
Domestic Parking Bays
132
14,300
9,800
(key airports)
Mumbai (Total:49)
20
Delhi (Total:44)
14
Chennai (Total:25)
Kolkata (Total:9)#
Hyderabad (Total:9)
0
2
# - 13 international bays at Kolkata are also allotted to domestic airlines for
night parking of aircraft.
Departure Slots
Mumbai
81
20
Delhi
49
38
Chennai
29
Kolkata
18
14
Hyderabad
12
19
Bangalaore
FFP Membership Base (~)
69
6,00,000
11
1,70,000
- 62 -
Status of Transaction
As on March, 2006
Term of SPA and escrow account extended by 90 days from March 23
to June 21 to enable obtaining of requisite approvals.
Approval received from Department of Company Affairs; pending
approval from DGCA.
INR 5.0 bn paid as advance to the Selling Shareholders against a
pledge of 100% of Air Sahara shares. This amount is refundable in the
event the transaction is not consummated.
Air Sahara to be operated as a 100% subsidiary, following receipt of
regulatory approvals and pending completion of the merger process.
Jet
Airways
personnel
assisting
Air
Sahara
management
as
consultants in upgrading of the product and improving operational

efficiency and reliability.
As on June, 2006
Certain conditions precedent in the Share Purchase Agreement not
fulfilled by 21st June, 2006.
As
per
the
applicable
provisions,
the
SPA
therefore,
stood
automatically terminated along with the Consultancy Agreement.

The Company and SAL have separately moved courts in Mumbai and
Lucknow, respectively and the Company has moved the Supreme
Court.
Matter is currently sub-judice.
- 63 -
Conclusion
Competition in the Domestic market has increased a lot. This can be
shown with the help of a diagram below:
Fig.12 Diagram showing increase in the domestic market and corresponding share of Jet
Airways.
Here, we can see that competition has increased tremendously with

the industrial capacity increasing by 48%. But, Jet Airways could not
keep pace with it and has shown only 19% increase in it. As a result of
which, the Average Market Share of Jet Airways has also come down
to 37.3% and Average Capacity Share has reduced to 35.7%.
The Pie has increased but at the same time the share of Jet Airways in
the pie has not increased though showing good profits for the year.
But, the competition is not going to last very long. Some start-up
players will have to leave the market because for them sustaining the
highly competitive environment will not be easy. When Jet Airways
- 64 -

started its operation, there were many players which then wound up
since they could not sustain the market. Then Jet Airways became the
leader and still is the leader. And, as it became the market leader in
Domestic market, soon for the International market, it can become the
leader too.
In the first quarter of 2006-2007, there is an undesirable shift in
passenger mix i.e. full fare/discounted fare is in the ratio 35/65 as
compared to last years first quarters 65/35 and the budgeted mix was
47/53.
Domestic Operations have shown an increase in PAT over the last
year, but International Operations have incurred start-up losses.
There is a lot of pressure on yields and fare discounting and capacity
induction by competitors has caused problems for the company.
Online bookings have increased for the year tremendously. This can be
reflected with the help of a diagram below:
Fig.13
Diagram showing increase in Online Booking
The Airports have not been able to keep pace with the increased
congestion and traffic. This has also increased the flying hours and
consumption of fuel.
- 65 -
Recommendations
Near term outlook still remains challenging for Jet Airways.
For optimizing fuel costs, Jet Airways should re-negotiate the
agreements with fuel companies.
Maintenance costs should be reduced. For this Lufthansa Technik
team is already in India to provide support.
Company should try to find a passenger mix wherein the number of full
fare passengers is more than discounted fare customers. But, keeping
competition in mind, it may not be possible. But, for increasing
retention of passengers; online bookings should be paid equal
importance. Jet Airways has introduced Lower 3 fare classes which are
available only for on-line bookings.
The Jet Airways-Air Sahara deal should be made effective, firstly to
retain the market leadership and secondly to take the advantage of
synergy.
Jet Airways should go for selling ad space on the overhead baggage
lockers, tray tables, seat-backs or aisles. The crew members can also
sport the logo of other brands on their uniforms. This can form a major
source of non-operating revenue and boost Jet Airways bottomline.
International market is relatively a newer market for Jet Airways. They
should be particularly concerned about consolidation of its operations.
Mr. Naresh Goyal through a Press Conference justify his stand of no
links with the underworld. This may be a reason why the Share prices
are falling and investors are not happy inspite of a rich dividend of
60%.
- 66 -
Glossary
ASKms: Available Seat Kilometers. This is the Available Seats per sector and
the distance between two destinations in a sector.
RPKms: Revenue Passenger Kilometers. This is the Achieved Seat factor
and the revenue generated through it.
Cost/ASKms: Cost Per ASKms, wherein Cost per Available Seat is
calculated.
Revenue/RPKms: Revenue Per RPKms, wherein Revenue per Achieved
Seat is calculated.
GSA: General Sales Agents. They are Regional Agents.
Scheduled flights: Flights based on pre-determined schedules.
Wide-body aircraft: Any aircraft with more than one aisle in the passenger
cabin.
SPA: Share Purchase Agreement. Agreement detailing the deal structure,
terms and conditions of the sale of the shares of a company, to be agreed and
signed by both parties.
Escrow Account: A third party account which holds money safely while a
sale is in progress or An account used to save monies required for the
payment of an eventual debt.
J Class: Business class.
Market Capitalization: A company's value, as determined by multiplying the
number of outstanding shares of stock by the current market price for one
share.
Sub-judice: A matter that is still under consideration by a court.
APUs: Auxiliary Power Unit. They automatically shut down the main
locomotive engine idle while maintaining all vital main engine systems at
greatly reduced fuel consumption. It is a Device (usually a small turbine) that
provides power for engine-starting and other systems while on the ground.
9W: Jet Airways.
S2: Air Sahara.
USc/USD: US cents / US Dollars.

Pax: Passengers.
- 67 -
Bibliography
Primary Information:
Interviews with Mr. Krishnan Balakrishnan, General Manager
Finance, Jet Airways.
Prospectus of Jet Airways.
Secondary Information:
Internet:
o www.jetairways.com
o www.sify.com/news/fullstory.php?id=14231939
o www.myiris.com/shares/ipo/draft/JETAIRPR/JETAIRPR.pdf
o www.expressindia.com/fullstory.php?newsid=61632
o www.indianchild.com/india_civil_aviation.htm
Books:
o Financial Management (For Calculation of Ratios) by Choudhry
& Chopde
Annexure
Articles sourced form Internet:
o Article on Page No. 50
o Article on Page No. 51
- 68 -

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