On August 31, Delhi-based low-cost airline SpiceJet reported a net loss of Rs. 789 crore ( 420 crore, excluding foreign exchange adjustments) for the quarter ended June 30, 2022 729 crore in the quarter ended June 30, 2021, as business was badly hit by record-high fuel prices and depreciation of the rupee.
At one level, SpiceJet’s losses underscore the continuing challenges that the Indian airline industry is facing such as increase in aviation turbine fuel prices without a consequent increase in domestic airfares, price ceilings prescribed by government regulations (they are 1 expired in September). In addition, many of the costs for Indian airlines are in dollars, but their earnings are largely in rupees and the rupee has depreciated heavily against many international currencies.
However, there are several other factors that make SpiceJet more vulnerable. For example, SpiceJet has never been a long-term promoter. In the two decades of its existence, SpiceJet has had four new owners – forget Kansagra to Wilbur Ross to Maran and now Ajay Singh. This frequent change in ownership means there are no long-term investors to guide the airline or anchor it in a well-thought-out vision since its inception. Also, facing IndiGo’s steady growth (which controls over 50 per cent of the domestic market) is the issue of lack of real market strength.
All other domestic carriers, SpiceJet’s market competitors, had the same promoters from the time they commenced operations. IndiGo is owned by Rahul Bhatia and Rakesh Gangwal (who are now selling their stake), while the Wadia Group is under the control of GoFirst since day one and Vistara has been and remains a joint venture between Singapore Airlines and Tata Sons. Is. But this is not the case with SpiceJet.
What is even more worrying is that the airline’s auditors have expressed doubts over SpiceJet’s rising liabilities being a “going concern”. They have done the same in the latest quarter. SpiceJet’s situation has now become so critical that it has delayed the salaries of several employees. The airline’s chief financial officer is also leaving the airline.
Combine this with the market situation where SpiceJet faced a double whammy as there was a global grounding of MAX aircraft fleet for over 30 months starting 2021 and the pandemic which has affected all the airlines for two months starting March 2020. Domestic airlines had ceased operations. It turned planes into white elephants.
So, what’s the way out for the cash-strapped airline? An indication of the current promoter’s thinking was provided by Singh when he said that “the company will soon tie up with investment bankers for potential growth of up to $200 million.”
This opens the door for any other airline or entity to acquire ownership in SpiceJet and save it.
Despite its problems, SpiceJet delivers – the promise of a growing Indian air travel market. Earlier this week, Boeing predicted that it expects India’s air traffic to grow by about 7 percent annually by 2040, while the South East Asia market will grow by 5.5 percent, China (5.4 percent), Africa (5.4 percent). percent) has been estimated. ) and Latin America (4.8 percent). This estimate is based on a horizon of more than 20 years and growth could be much higher in the near term.
Boeing also said it was excited at the “huge potential” in the air cargo space. This could provide another revenue stream for the potential investor as air cargo is one place in which SpiceJet has a presence along with SpiceXpress.
However, getting a potential investor interested will not be easy. Foreign investors may demand their own meat in terms of asking the current management to either exit completely or remain in the minority and leave the airline’s operations on a new team. India allows 49 percent foreign direct investment in domestic aviation. Several foreign carriers, including Qatar Airways and flydubai, have recently reported profits and are keen to gain a greater share in the Indian aviation market. With the government showing no signs of bilateral exchange of air services with these countries, they may look at other avenues, including buying into domestic airlines, to increase their presence in this market.
Indigo is unlikely to be interested. It flies a variety of aircraft, of which it has arranged over 300 deliveries. Vistara is probably busy figuring out how to co-exist or merge with Air India which now belongs to Tata.
So who can be the savior of SpiceJet? Hedge funds or some foreign investors would like to try their luck. The airports have similarities: Airport Paris brought in GMR Airports, which runs two of India’s best airports in Hyderabad and Delhi, and Zurich Airport will build a new one at Jewar, near Noida.
This may require a new management running the red-hot and spicy SpiceJet, but it remains to be seen whether its current promoter Ajay Singh wants to fly the course. He may have few options left.
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