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SpiceJet needs Rs 2,100-crore infusion; can the embattled airline survive?

business Updated: Dec 14, 2014 23:51 IST
Tushar Srivastava

Airfares have been rising in recent weeks, not just because it is the busy holiday season, but also because low-cost carrier SpiceJet’s cancellation of 1,861 flights till December 31, 2014 has created a shortage of seats.

The spate of cancellations and the intervention by the the aviation regulator, the Directorate General of Civil Aviation (DGCA), cancelling SpiceJet’s slots in various airports and directing it not to accept bookings beyond one month, has made fliers jittery and aviation experts and investors worried about the future of the airline.

“Without an immediate and large capital infusion to stabilise operations and inspire confidence in staff and passengers, I don’t see any chances of recovery,” said Kapil Kaul, South Asia CEO of global aviation consultancy Centre for Asia Pacific Aviation (CAPA). He estimated that the airline needs an immediate infusion of about $300-350 million (Rs 1,800-2,100 crore) to survive.

Kalanithi Maran (SpiceJet promoter who has a 54% stake in the airline) has already brought in about `250 crore into the airline this year but that may not be enough.

The airline did not respond to mails from HT for this report but its COO Sanjiv Kapoor had told this publication last month: “Recapitalisation is needed. Obviously, activity is ongoing on that.” He did not elaborate further.

It may not be easy to rope in a new investor to rescue the airline. SpiceJet has combined losses from 2006-07 to 2013-14 of Rs 2,194 crore. It has incurred losses in six of the eight preceding quarters and it last earned a profit in the quarter ending June 2013.

This has pushed it to the brink — its liabilities exceed its assets by Rs 1,460 crore, prompting its auditor, SR Batliboi & Associates to state: “These conditions... indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern.”

A company is known as a ‘going concern’ if it has sufficient resources to continue to operate indefinitely and to avoid any potential bankruptcy risks.

Explaining the flight cancellations, Kapoor told HT last month: “We are going through a fleet restructuring… By December we should have 35 Boeing 737s and by mid-2015 the number should be between 45 and 50.”

SpiceJet is currently flying 22 Boeing 737s (in addition to 15 smaller Bombardiers), indicating that it is finding it difficult to put its house in order. It has cancelled 1,861 flights till December 31, 2014.

“SpiceJet may have gone beyond the point of return for FDI. Let’s face it, apart from Etihad, no one is interested in investing in Indian airlines. The only way to save SpiceJet is to either let it die or the current owners should step aside and let someone else take over,” aviation expert Saj Ahmad said.

On May 20, the airline had said it was in advanced talks with an “external entity” for a capital infusion but nothing has materialised.

But experts blame DGCA for at least some of SpiceJet’s woes. “The DGCA directive on immediate cancellation of slots and forward booking restrictions will hurt the airline’s recovery chances,” said Kaul. “The DGCA should play an enabling role, which will give confidence to the staff and the market including potential investors. It shouldn’t been seen as aiding its closure. “

The bottomline, then, is: bring in money.