HAPPEQUITY FINANCE LP

JET AIRWAYS
CASE
SUBMISSION

Submitted by
Shabari S Shetty

1
 1. How was the overall financial performance of the company?
Jet Airways remained profitable in throughout the 1990’s. In the year 2003 the Indian Airline
Industry entered the low-cost airlines sector. In order to prune the high-cost debt and improve
its Capital structure Jet Airways issued an IPO in the year 2005 which was oversubscribed to
the extent of 18.7 times at a price of Rs.1379 per share. Jet Airways also merged with Air
Sahara to take on the competition in the low-cost airline sector more efficiently. It was
rebranded as Jetlite. The cost of this acquisition was 14.5 billion. The company incurred a
huge loss of 14.2 billion in the FY 2012. The reason for Jet Airways for incurring such huge
losses was the increase in fuel costs. This had a direct impact on the profitability of the
company. This along with the low-ticket prices and high competition affected the financial
performance of Jet Airways. Due to the fall in the value of Indian currency against the dollar
Jet Airways further had a loss of 41.29 billion in the FY2014.
Overall, Jet Airways was only profitable in two years from the span of 2008 to 2018. The
cash and cash equivalents had also fallen to 3.21 billion in FY2018 from 9.79 billion in
FY2015.

2. What are the early warning signals and risk factors that may lead to
bankruptcy?

The inability of Jet Airways to turn out to be profitable despite increase in market share
represents a huge red flag. The increase in net losses from the FY11 of Rs. 858.4 to a net loss
of 14.2 billion also does not look positive. The cash and cash equivalents had also decreased
from 1.51 billion in the end of FY11 to 715 million in the FY12. The inconsistent
profitability and increase in losses each year represents poor financial performance of Jet
Airways. Alon with this the cash balance of the company reduced significantly. Jet Airways
also wrote off all its investments in Jetlite in the year 2015. The exhibit also shows that the
total liabilities rose each year while the total assets showed a steady decline. In the FY2018
Jet Airways also saw a reduction in its market share to 12.2%. These are all the signals of
Bankruptcy for the company.

3. Find out if the company was headed towards bankruptcy by calculating

Altman’s Z-score using data.

Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

  2016 2017 2018

Current Assets 62,823.80 56,161.50 73,625.40
Current 1,48,115.90 1,19,851.10 1,44,983.30
Liabilities
Total Debt 1,08,776.20 72,203.70 52,964.80
Total 2,36,199.80 2,25,129.70 2,31,574.50
Liabilities

2
 Total Assets 2,06,059.80 1,60,371.00 1,59,154.50

EBIT 24,103.10 23,370.60 1,905.80

Retained -31,276.00 -65,894.70 -73,556.00
Earnings
Operating 25,311.40 9,608.50 16,976.40
Cash flow
Sales 2,19,688.10 2,12,334.30 2,32,488.40
Market 62,154.81 59,743.70 69,195.01
Capitalization
Working -85,292.10 -63,689.60 -71,357.90
Capital

A -0.413919 -0.397139134 -0.448356157

B -0.151781 -0.410889126 -0.462167265
C 0.116971 0.145728342 0.011974528
D 0.263145 0.265374582 0.298802372
E 1.066138 1.324019305 1.460771766
       
ALTMAN Z 0.900834 0.912335848 0.494507572
Score

If the Z-score falls below 1.8 it suggests that the company is going to go bankrupt. From the
above calculations we can infer that Jet Airways had a significantly low Z-score. In the year
2018 the Z-score was 0.4945 which strongly suggests that the company was nearing
bankruptcy.

4. Is there a better model than Altman’s Z-score to find out if the company is
headed towards bankruptcy? If yes, what is the new model and why is it better?
L model is better model when compared Altman Z score model. L is model includes a
seventh variable debt ratio based on Altman z score model. The J also model is better that the
Z score model. As the z score model does not mention about the cash flows J model includes
the cashflow from operations. Z model has 5 variables, J has 6 variables which is cash flow
from operation, L has 7th variable which is debt ratio. Research has proved that the L-model
predicts bankruptcy 87.4% of times within one year prior the bankruptcy.