Oct 26, 2007

Jet Airways's Naresh Goyal

Naresh Goyal

Naresh Goyal is an inscrutable man. If you’re not in his line of fire, being around him can be a lot of fun. He’s got a great sense of humour. He laughs so often that it’s impossible not to laugh with him. He’s a great conversationalist with a few million stories to tell—and he tells them well. And then there is his legendary hospitality—Goyal is on first name terms with the who’s who at every major city in the world. It is, therefore, easy to imagine the promoter of Jet Airways as an uncomplicated man who’s done a pretty good job of creating a pretty good airline.


Those feelings are reinforced when you walk into his office in suburban Mumbai. You’re struck by the absence of a work desk with all the mandatory trappings like a laptop, PDAs and customised stationary—only a table around which eight people can be seated and a few sofas to lounge around on. And his words are crafted to disarm you. “I’m not a very educated man. I don’t need all that,” he says and delivers his trademark, high pitched laugh.


But accepting these assumptions and his selfdeprecatory remarks at face value would be rather naïve. People who’ve seen him at close quarters will tell you Goyal doesn’t need a desk to write on. Every scrap of information is filed away in his head for posterity. And he never forgets—anything. It’s the people around him who take instructions and do all the writing. The table is for them. “He’s a bloody tough boss to be with,” mutters an executive who’s seen him from close quarters.


But then, airlines are built by tough men. Goyal started creating one when only two kinds of airlines existed in the country. Those run by the state like Air India and Indian Airlines, which didn’t give a rat’s backside what people thought. And while newer entrants like East West and Damania tried hard to make a living, for various reasons they went belly up. As Goyal says, “The quickest way to become a millionaire is to first become a billionaire and then get into the airline business.” Just making it through those years needed ruthless grit. To Goyal’s credit, he manoeuvred his way through a seemingly impossible system to create an airline that has for all practical purposes defined how Indians view the flying experience. “I have no personality, so I can fit in anywhere,” he says.


You would be forgiven therefore for imagining that now, all is well in Goyal’s world. Truth is, nothing is what it seems. Aviation analysts reckon when this financial year closes, collectively, the business will have to absorb $500 million in losses. In large part, this is a function of too many airplanes chasing too few passengers. Last year for instance, passenger traffic grew at roughly 40-45%. But airline capacity grew at 50%. Supply outstripped demand and airlines dropped fares to fill their planes. Lower fares, however, meant the passenger load factor had to be in excess of 80% for airlines to break even. For most players—Jet included—it has been in the region of 70%. Given these realities, it is difficult to imagine what shape Jet Airways will take in the future. Surely, Goyal knows.


The perfectionist:


Problem is, Goyal isn’t telling. Asking him to answer the question is a no-brainer. Because he is the kind of man who plays his cards close. Take this time for instance when his A-team woke up one June morning in 2005 at their homes in Mumbai. Each one of them nearly choked on their coffee.


Business papers were full of Goyal’s decision to order 20 new wide bodied aircraft for Jet Airways at the Paris air show. All of it, the newspapers reported, was to be delivered and inducted into the airline’s fleet over 18 months. But nobody at the airline—not the CEO, not the directors on Goyal’s board, absolutely nobody—had a clue this was coming.


It is not clear why he did that. Some speculate Goyal had seen as far back as then that Vijay Mallya’s Kingfisher Airlines would be a force to reckon with in the years to come. Goyal, they say, wanted the first mover advantage, never mind how impossible the task of inducting these planes into the fleet seemed. Then there are others who argue that Goyal is an emotional man—and that it was an impulsive decision driven by little reason.


Whatever the case be, says an executive who has since then quit the airline: “It was unheard of. And we didn’t even know what routes the planes would be deployed on. That was when I asked myself, what am I doing at this place?” Those were the days when ambiguity existed around the rules that permitted Indian airlines to fly abroad. Not just that, there were no trained pilots or engineers in the country who could manage the Boeing 777.


“I wonder what would have happened if the government hadn’t changed the rules!” says the executive. “I guess that is the difference between an entrepreneur and a CEO,” he adds. “CEOs are handsome. Entrepreneurs are ugly,” says Goyal and roars with laughter. So is it true, we ask him, that he is a control freak who gives nothing away? “I get into detail. That makes me passionate about my business, not a control freak,” he says.


People around him though “wish he interfered a little less in the daily operations”. Does that lead to complications? “Yes,” says a source at Jet Airways. “The chain of command is disrupted.” How does that matter, we press. When Goyal decided to acquire Air Sahara, says the source, there was no doubt in anybody’s mind it was a good deal—not because of what Air Sahara had managed to achieve, but because of what it could potentially bring to the table. “But Goyal doesn’t think too much of a chain of command. When he wants something done, he gets it done. It doesn’t matter who is mandated to do it. In this case, we couldn’t complete the due diligence. It was only after we closed the deal that skeletons started tumbling out of the closet.”


For instance? “Some planes were unfit to fly,” says the executive. “Then there was the fact that Sahara hadn’t put any money into maintaining its fleet for months. We didn’t know that.” So why does Goyal run things the way he does? “Look at it this way,” says the former Jet executive, “He holds 80% in the airline. This is his wealth. If it fails, he is paranoid he will be known forever as a failed entrepreneur. To that extent he is right.” Ask Goyal if the stories about him being a tough boss to work with are true, he looks back at you quizzically and laughs. “I’ve never sacked anybody in my life,” he says. “If I don’t want somebody, I give him newspapers to read. After three months of doing nothing else but reading the papers, they get the message and leave,” he says. “That doesn’t make me a tough boss,” he concludes.


Method to the madness:


By the middle of next year, the wide bodied aircraft that Goyal ordered, much to the chagrin of his team, will be deployed on international routes. Another three that have been ordered will be deployed in 2009. The assumption is this: Jet Airways will take losses for 12-18 months on each of the routes it operates on. That is the deadline Goyal has set his team to break even. The airline has already started making profits on the Mumbai-London, Mumbai-Singapore and Chennai-Singapore routes. If the relentless pace at which routes are being added tapers off, by 2010, all of the routes Jet Airways flies on will become profitable ones. By then, Goyal is hoping that 50% of all his business will come from international operations.


As far as domestic routes are concerned, the expectation is the market will grow at 25-30% for at least five years. Capacity additions, however, will be in the region of 12-15%. Coupled with consolidation in the industry and the argument that “however rich Mallya is, his resources are also finite,” the airline expects a certain amount of rationalisation to steady the business.


Eventually, argues Goyal, he will leave his business to professionals to run “because my children aren’t interested in it. My son only wants to play cricket and my daughter has expressed no interest in it.” “Sooner or later, he will have to dilute his 80% stake. I suspect he will wait until the time he feels the valuations are right,” says an aviation analyst. “And in the future, if regulations permit, he may even bring in a foreign partner,” adds the analyst. Talk in aviation circles is that Lufthansa and British Airways are interested parties. But like everything else with Goyal, it is impossible to know until it happens. In the meantime, Goyal continues to work relentlessly. As he puts it, “To build an airline with the technical efficiency of Lufthansa, the on time performance of Swiss Air, the service quality of Singapore Airlines and the accident free record of Qantas.” By all accounts, he’s getting there.