New Delhi: SpiceJet Ltd may need more than just a ₹3,000 crore fund infusion to reclaim its spot in the skies as it seeks to emerge from an unending series of struggles that have weighed it down for several years.
The airline, which had almost shut down in 2014 due to financial distress, expects to get its grounded aircraft up again as it raises money from multiple sources. But it still has to contend with multiple challenges, including legal hurdles, millions of dollars in unpaid dues, and stiffer competition that has eroded its market share.
On Friday, the Delhi High Court once again rebuked SpiceJet for using leased engines without paying rental dues. The court also pulled up the airline for making assurances despite lacking the funds to fulfill them.
“You are using someone else’s property, and you can’t use it without paying the rent… Which court allows you to use property without paying?,” Justice Rajiv Shakdher remarked.
Even so, SpiceJet is confident of a comeback, a decade since its troubles began.
“Despite facing unprecedented challenges like the grounding of the Boeing 737 Max and the global covid-19 pandemic, which temporarily impacted our operations, SpiceJet is now poised for a robust comeback,” said a spokesperson for the airline.
SpiceJet expects shareholder approval by 13 September to raise up to ₹3,000 crore ($357 million) via a qualified institutional placement (QIP) of new equity shares, the spokesperson added. “The entire exercise is slated for completion by 30 September. We have appointed top-tier merchant bankers to expedite the process and ensure success. This capital will be pivotal in driving our growth and expanding our fleet.”
SpiceJet’s market share in India’s aviation sector has continued to drop this year—to 3.1% in July from 5.6% in January, as per the latest data from the Directorate General of Civil Aviation.
The airline’s market share had been declining even earlier—dropping to 14.9% in 2020, when covid hit India, from 17.4% in 2014. Over the past decade, IndiGo, owned by InterGlobe Aviation, has expanded its domestic market share from 31.8% in 2014 to 62% now.
“Market share is a function of capacity deployed in the market… (SpiceJet) is currently operating limited aircraft and thus the drop in market share,” said Ameya Joshi, founder of aviation consultancy firm Network Thoughts. “IndiGo has more than tripled in size from 2014, whereas SpiceJet has more than halved.”
Covid, and the factor of 13
By the end of 2014, SpiceJet, then controlled by media baron Kalanithi Maran’s Sun Group, was on the verge of closure, ridden with debt. It got a second chance the following year when Ajay Singh, who had cofounded SpiceJet in 2005, acquired 58.46% of the company’s equity share capital from Maran and Kal Airways Pvt. Ltd.
India’s civil aviation ministry had also come to the airline’s rescue in December 2014, approving a series of measures to bail out the cash-strapped airline.
But just as SpiceJet’s market share stabilised at 12-13% in 2015-2016, the Gurugram-based carrier took a major step towards capacity expansion in January 2017, placing orders for 155 Boeing 737 MAX aircraft, with an option to buy an additional 50 aircraft.
But a mere 13 of those aircraft were delivered when SpiceJet suffered a major setback—this time due to a global grounding of the Boeing 737 MAX in March 2019 following two fatal accidents (Lion Air and Ethiopian Airlines) involving the aircraft type.
The following year, SpiceJet ran into another severe patch of turbulence as covid curfews kept people from flying, and has struggled to recover since.
Earlier this year, the cash-strapped airline laid off about 1,500 employees, or about 15% of its staff, to be able to save about ₹100 crore per year from the downsizing and other cost-saving measures.
SpiceJet is also delayed salaries and is fending legal battles over unpaid dues to aircraft lessors, vendors and suppliers, and faces contempt notices from the Delhi High Court and the National Company Law Tribunal.
“SpiceJet has steadily been losing market share. The number of their flights has gone down, so all in all, a very bleak scenario for them. We book with them only if all other flights are booked or in the sector where the tourist wants to travel no other airline flights are available,” said Rajiv Mehra, president, Indian Association of Tour Operators.
“To resurrect itself, it should improve the punctuality of the flights—as far as possible flights should leave and arrive on time, control the negative news flow and take other corporate measures.”
Signs of optimism
SpiceJet’s plan to raise ₹3,000 crore through a qualified institutional placement of shares is its latest effort to shore up capital. Earlier, it completed a capital infusion of ₹744 crore by allotting shares and warrants on a preferential basis.
In February, the airline announced it had secured additional funding of ₹316 crore, taking the total raised through its preferential issue to ₹1,060 crore. In January, the airline received an in-principle approval from BSE to raise ₹2,242 crore by issuing shares.
SpiceJet’s spokesperson toldMintthe airline also expects ₹400 crore from the subscription of previously raised warrants and a ₹300 crore equity infusion from chairman and managing director Ajay Singh.
The spokesperson also said the airline had secured agreements for new engines for its grounded fleet. Currently, only 23 of SpiceJet’s 56 aircraft are operational.
“Our operational fleet is set to expand substantially over the next 45 days. We will be adding new leased aircraft to our fleet,” the spokesperson said. “Regarding salaries, the company fully understands the importance of timely disbursements and is actively addressing the issue.”
SpiceJet’s first-quarter consolidated net profit declined 20% from a year earlier to ₹158.2 crore. But that was an improvement from the March quarter’s ₹126.9 crore net profit, and the December quarter’s ₹299 crore net loss.
The company has also trimmed its total liabilities—down to ₹11,252 crore at the end of the June quarter from ₹11,690.7 crore as of 31 March and ₹12,420.2 crore as of 31 December.
Amid all its troubles, SpiceJet’s shares have more than doubled over the past year. In this year so far, the SpiceJet stock is up about 10%. The airline’s shares ended Friday’s trading on BSE at ₹66.72 per share, up 3.12%.
Limited time to reverse its slides
It will take more than these efforts to instill confidence in flyers in an airline that has been in troubled skies for about a decade.
In July, SpiceJet carried 13,000 passengers on an average per day and operated around 100 daily flight departures, down from 60,000 daily passengers and more than 480 daily flights in July 2019. Its international operations have dropped to 4,000 passengers and 27 flights per day from 7,200 passengers 50 daily flights in July 2019.
“Travelers often equate a higher market share and frequent operations with reliability and stability,” said Jyoti Mayal, vice chairperson, Federation of Association in Indian Tourism and Hospitality. “Reduced operations might lead to concerns about flight availability, punctuality, and overall service quality, potentially driving customers to more stable competitors.”
Besides, SpiceJet has been the least punctual among domestic airlines, with just 51% of its flights taking off on time, as per 21 August data from the ministry of civil aviation. AIX Connect (74.7%), Vistara (70.6%), Air India (68.5%), IndiGo (66.3%), and Akasa Air (64.9%) registered a better punctuality rate.
“A not-so-regular operation means that the airline loses the ability to price higher,” Joshi of consultancy firm Network Thoughts. “SpiceJet is already facing challenges on multiple fronts and has limited time to reverse its slides.”