SpiceJets Turnaround Track Record Faces Its Biggest Test Yet

SpiceJet Ltd. is no stranger to hard times, having tackled trouble several times in its 17 years of operations. Still, after the pandemic, it has run into its most-turbulent patch yet.

Over the last few months, the low-cost carrier reported safety snags, sent pilots on leave without pay, grappled with the exit of Chief Financial Officer Sanjeev Taneja, and witnessed its stock plummet.

At the root of all this is the company’s financial health. The airline has lost money for four years on the trot, with combined consolidated losses of Rs 4,013 crore.

Two of these years were marred by the Covid-19 pandemic, where even the market leader IndiGo’s parent InterGlobe Aviation Ltd. reported losses. However, unlike its rivals, SpiceJet doesn’t have a lot to fall back on.

As of March 31, 2022, the company's accumulated losses amount to Rs 5,912.6 crore, eroding its net worth. Current liabilities have exceeded its current assets by Rs 6,408.7 crore, according to the auditor’s report on the company’s financial statements for the year ended March.

The auditor expressed apprehension about the airline’s ability to continue as "a going concern"—suggesting its inability to meet financial obligations whenever they become due.

“These conditions and other matters set forth in the aforesaid note, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern,” the report said.

But the company insists that it is on the right track.

“SpiceJet has weathered the difficult Covid period and is right now on the course of recovery,” the company spokesperson said. “All key departments are adequately funded, and all partners and vendors are being paid as per mutually agreed timelines.”

Over the last 10 quarters, the airline has only been profitable during October-December last year, the peak season due to festivities. The airline won’t be able to fully benefit from the season this time as the Directorate General of Civil Aviation has extended the 50% cap on its flights Oct. 29.

The limit, imposed after frequent snags, was extended as a matter of abundant caution, even after the DGCA noted an “appreciable reduction in number of safety incidents”.

“Given the airline’s track record, the cap on capacity is unlikely to be removed soon,” Mark Martin, founder and chief executive officer at the aviation consultancy Martin Consulting, said. “There are still doubts on assured supply of spare parts.”

SpiceJet’s Plans

Ajay Singh, the chairman and managing director of SpiceJet, has said the company is looking to raise up to Rs 2,000 crore through various means, including a stake sale.

Singh said the carrier will induct more planes to generate cash flow from sale-and-leaseback of airplanes.

The company is also looking to get an additional Rs 1,000 crore as part of the modified Emergency Credit Line Guarantee Scheme, according to a person with knowledge of the matter, who spoke on condition of anonymity.

The company's spokesperson said the proposed hiving off of SpiceXpress is proceeding as per plan. “Separating the logistics business will result in a one-time gain of Rs 2,555.8 crore, wiping out our substantial negative net worth,” the spokesperson said.

But these are still plans.

“Whenever you invest in a company, you look for strong fundamentals. Investing in SpiceJet right now is like shooting yourself in the foot,” Martin said. “The company has lost credibility with a lot of aircraft lessors, and it will be difficult to generate cash through sale-and-leaseback model.”

Other challenges, too, are unlikely to ease anytime soon.

“Global factors like high aviation fuel costs and depreciating currency have led to unfavourable environment for aviation operations,” Mitul Shah, head of research at Reliance Securities, said. "Higher airfares and growing passenger traffic can ensure airlines’ profitability in the future.”

Shah, however, cited SpiceJet's experience of pulling itself out of such situations in the past.

Even by those standards, that will be a tough task.