Early this month, SpiceJet confirmed an open secret — that the debt-ridden budget airline was in talks “with various investors to secure sustainable financing”.

Those aware said, discussions had been initiated with a Middle Eastern carrier and around 24 per cent of stake was likely to be offloaded by Ajay Singh, the promoter and Chairman of the airline. His holding in the carrier is around 60 percent.

“Post the stake sale, Singh would still retain control of the airline,” said a company official requesting anonymity.

Once known as the turnaround man in India’s aviation sector, Singh is now struggling to keep the airline afloat. Even as the financial woes are crippling, a spate of safety incidents have sent the carrier into a tailspin.

Air-pockets Ahoy

SpiceJet, amongst India’s top three airlines in India by market share, is not new to controversies.

In 2014, when the low-cost carrier was on the verge of shutting down, Singh stepped in. By 2015, SpiceJet was the world’s best-performing airline stock, with an over 300 per cent appreciation in price. As he took control of the carrier, Singh reportedly settled dues of some ₹2,200 crore before the airline was hit by factors beyond its control. Some of these included a global ban on Boeing Max aircrafts that SpiceJet owned; and, of course, the Covid-19 pandemic, which hit the aviation sector very hard.

Now the airlines’ management has to firefight on multiple fronts that include handling disgruntled pilots and other staff irked by reported delay in salary payments, as well as rising concerns over flight safety. There were at least nine near shaves between May and July, which prompted the Directorate General of Civil Aviation – India’s civil aviation regulator – to curtail SpiceJet flights to 50 per cent of its summer schedule for at least eight weeks.

“SpiceJet finds itself with an extremely fragile balance sheet, competing in a landscape where credit quality is a key component of success. An equity infusion will certainly be a welcome change,” said Satyendra Pandey, Managing Partner of aviation industry firm AT – TV.

Cash-strapped

According to the last available annual report – for 2020-21 – the company had financial liabilities to the tune of ₹11,290 crore, which include borrowings of ₹ 708 crore; trade payables of ₹ 1,729 crore; lease liabilities of ₹ 8,450 crore and other financial liabilities of ₹403 crore.

A further break up shows that long term borrowings were ₹303 crore; short-term borrowings ₹405 crore and other current liabilities (maturities on long term loans) of ₹361 crore.

Cash and cash equivalents in hand are just ₹30 crore odd. Net debt is ₹1,036 crore and its net debt to total equity ratio, a negative 0.40.

The airline explained that it has adopted a policy of “only dealing with credit worthy counter parties” so as to mitigate risk of financial loss from defaults. Trade receivables are primarily from cargo and other revenue streams. Majority of the group’s passenger revenue are against deposits made by agents.

As on March 31, 2021, the group had 38 customers that owed more than ₹1 crore each and accounted for approximately 86 per cent of all the receivables outstanding.

It’s evident that even for day-to- day operations, urgent funds are needed. In the annual report, the company does say, “The group has obtained fund and non-fund based working capital lines from various banks.”

Also, it has so far not defaulted on paying its loans. Chartered accountant firm, Walker Chandiok & Co LLP – the statutory auditors – while assessing FY21 accounts said, the company has “not defaulted in repayment of its loans or borrowings to any bank during the year”.

The auditors however noted undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, goods and services tax, cess and other material statutory dues, as applicable, have not been regularly deposited to the appropriate authorities and there have been significant delays in a large number of cases.

In FY21, the company had a total income (standalone) of ₹6067 crore and a net loss of ₹998 crore. SpiceJet is yet to declare results for FY-22. In fact, results for Q4FY-22 (Jan – March) are also due. According to a company spokesperson, a ransomware attack has delayed closing of year-end-accounts.

Negative Net Worth

Last available financial reports of the company show a negative net worth of ₹2,572 crore as on March 31, 2021.

“The losses have been primarily driven by adjustments on account of implementation of Ind AS 116 (a lessee accounting model), adverse foreign exchange rates, fuel prices, pricing pressures, and the impact of Covid-19..,” the notes to its accounts said.

The report, however, struck an optimistic note by saying improvements in macroeconomics factors relevant to the Company’s business, as well as the renegotiation with vendors, and expectations of re-introduction of Boeing 737 MAX aircraft into its operations would increase operational efficiency and support cash profitable operations.

Meanwhile, lessors are pressurising for repossession of aircrafts and at least one of the leasing companies have pointed out SpiceJet’s inability to pay rents as a reason for seeking repossession.

Given all this, analysts are sceptical about how much the stake sale will really fetch. “It is interesting at what valuation the stake sale will take place because the airline really does not really have what one could call land banks or huge assets like buildings. In a sense, it’s just the brand that has been created,” an analyst said.

The saving grace has been the profitable cargo operations. The FY21 annual report says, revenue from cargo was at ₹1421 crore – a 161 per cent growth y-o-y. There are plans to hive off the division into a separate subsidiary and raise funds. However, that move too is awaiting a nod from some of the bankers, according to sources.

Nine lives

Despite all these headwinds, SpiceJet is determined to fight it out. On August 1, the airline said it had done a full and final settlement with the Airports Authority of India (AAI) and cleared all outstanding principal dues of the airport operator. “SpiceJet’s ability to clear the pending dues reflects the airline’s improved cash flow in recent times,” the company statement said.

History is on its side. SpiceJet, it may be recalled, started as a low-cost airline in 2005 after Singh and London-based Bhulo Kansagra joined hands to purchase a defunct airline that was registered between the SK Modi group and Lufthansa group. The airline, ModiLuft, had all the necessary flying licences in place, and the duo renamed the company SpiceJet.

Singh left SpiceJet in 2010 but made a comeback in 2014. The airline was then owned by billionaire businessman Kalanithi Maran. After settling all its dues, the airline went on to place a record order of 205 aircraft for a staggering $22 billion from American aircraft manufacturer Boeing. But fortunes turned by 2019.

“If you recall when Covid-19 hit and the airline industry came to a standstill, Singh turned his airline business into a cargo one, and by his own admission, there wasn’t a single day when SpiceJet did not operate. The airlines were used to transport medicines, PPEs and farm products,” said an analyst.

The airline was also the first to move into Jet Airways’ slots and also take up those airlines, the analyst, pointing out that Singh has never shied away from taking “business risks”.

Now with new airlines like Akasa Air spreading wings and looking at expansion on domestic routes and Jet Airways looking to restart operations under a new management, the pressure is obviously far more on SpiceJet.

But as some industry insiders point out SpiceJet is like the proverbial cat with nine lives – weathering one storm after another. Let’s see if it can do so this time.

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