SpiceJet’s mid-air malfunctions come on top of its financial woes

Bloomberg | | Updated on: Jul 18, 2022
SpiceJet chairman Ajay Singh

SpiceJet chairman Ajay Singh | Photo Credit: PTI

SpiceJet is now under scrutiny from India’s aviation safety regulator DGCA for frequent technical glitches

SpiceJet Ltd. staged one of global aviation’s most remarkable turnarounds in 2015 after founder Ajay Singh swept in at the eleventh hour to rescue it. Less than a decade later, the Indian budget airline needs a revival of fortunes again.

Once an investor darling, SpiceJet is now the worst-performing airline stock in Asia, fighting a run of negative publicity triggered by a slew of seemingly innocuous but frequent technical glitches. The airline also hasn’t restored pilot salaries even after a surge in domestic demand and has delayed releasing quarterly results for the three months ended March 2022 citing a ransomware attack on its servers. It’s reportedly fallen behind on statutory dues, too. 

SpiceJet, known for naming its aircraft after the aromatics used to flavor food, has struggled in India’s cut-throat aviation market where even before the pandemic fierce price wars led to wafer-thin margins. Covid-19, which destroyed travel, came as a potentially fatal blow for many carriers around the world, including SpiceJet, as their main revenue source dried up.

“Unless SpiceJet injects fresh funds, it will be difficult for them to survive,” said Harsh Vardhan, chairman of New Delhi-based Starair Consulting and former head of Vayudoot, a now defunct Indian regional carrier that was merged with Indian Airlines in the 1990s. Repeated technical failures have “shaken public confidence. When people keep reading about SpiceJet’s missed payments to airports and oil companies, forward bookings diminish,” he said.

DGCA’s notice

The technical incidents mean the airline -- which bills itself as “Red, Hot, Spicy” -- is now under scrutiny from India’s aviation safety regulator. Earlier this month, the Directorate General of Civil Aviation gave SpiceJet three weeks to explain why action shouldn’t be taken against it following multiple mid-air snags. It also noted that SpiceJet has frequently invoked a clause that allows flights to proceed when some parts are malfunctioning so long as those parts aren’t essential to the flying or safety of the aircraft.

That notice from the regulator said SpiceJet has failed to establish “safe, efficient and reliable air services,” and a number of its aircraft returned to their origin or continued their journey with “degraded safety margins,” according to the missive, a copy of which was posted on Twitter.

SpiceJet said in a statement that it will be “responding to the DGCA within the specified time period.”

“We are committed to ensuring a safe operation for our passengers and crew. Last month, all our planes were audited by the DGCA and found to be absolutely safe,” the airline said, noting that the DGCA has said that “on average about 30 incidents take place daily, including go-arounds, missed approaches, diversion, medical emergencies, weather, technical and bird hits. Most of them have no safety implications.”

But SpiceJet’s problems don’t just end with technical malfunctions. In late 2021, the airline had cash and cash equivalents of just ₹ 729 million ($9.1 million) compared with total debt of ₹97.5 billion. It has also suffered three straight years of losses totaling ₹22.5 billion combined.

India’s aviation regulator said a probe into the airline’s financials revealed that SpiceJet hasn’t paid vendors and suppliers on time since September, leading to a shortage of spare parts.

SpiceJet noted that its plan to spin off its cargo service SpiceXpress will result in a one-time gain of ₹25.6 billion.

Its pilots now earn about one-third of their total take-home salaries before the pandemic after their wages were reduced to save money. SpiceJet said that since January, the airline has “steadily been raising salaries with the objective to reach pre-Covid levels.” Currently, pilot salaries are “at a very healthy level and are steadily increasing month-on-month,” it said.

People familiar with the matter also said employees haven’t been able to access their pay slips since the cyber attack and don’t have copies of their Form 16, needed in India to file tax returns. The last date for filing tax returns is July 31 and the delays are making staff even more nervous, the people said, declining to be identified.

SpiceJet said in its statement that the pay of all employees is being “credited on time, along with applicable increments.”

“Due to the ransomware attack some of our systems are not yet fully functional. They will be operational soon. When the full salary is being credited on time, there is no reason why salary slips will not be provided to employees,” the airline said, adding it will provide staff with their Form 16s before the filing date.

“Pilots aren’t happy because they’re overworked and underpaid,” said Amit Singh, a former head of pilot training at IndiGo, India’s largest airline, who founded not-for-profit organization Safety Matters Foundation. “How do you guarantee safety when there is so much stress? The pilots and cabin crew onboard are stressed, the engineers taking care of safety are stressed.”

The technical incidents started to surface in May and continued earlier this month.

Safety issues

On July 5, a SpiceJet flight operating a Boeing Co. 737 Max plane was diverted to Karachi due to an indicator light malfunction. Later that day, a Q400 turboprop was forced to make a priority landing in Mumbai after its windshield cracked. Another SpiceJet aircraft from New Delhi on July 2 returned to the Indian capital due to smoke in the cabin, while a technical issue with landing gear was discovered last week after a flight to Dubai arrived safely.

None of the incidents were life threatening, and all passengers were safe, but the frequency of the mishaps is garnering public attention. Travelers also say they may avoid the airline, according to a survey of more than 21,000 fliers conducted by LocalCircles.

Tough times ahead

The business executive renegotiated with vendors, tweaked the carrier’s routes, established India’s first dedicated air cargo fleet, expanded into retail and healthcare, and helped SpiceJet get back into the black. Singh also ordered hundreds of new planes from Boeing, making SpiceJet one of the US planemaker’s biggest customers.

Whether Singh can orchestrate another rescue remains to be seen but “in the past, they’ve displayed an ability to come out of catastrophic situations,” said Mitul Shah, the head of research at Reliance Securities Ltd. 

“But it will be tougher this time as the entire aviation industry is suffering from pandemic-led losses, fuel prices are high and the weakening rupee has made imports of crude, aircraft maintenance and lease payments more expensive,” he said. “An infusion of capital is important at this juncture.”

Published on July 18, 2022
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