Spicejet In Rough Weather — Here's Why
In an investor presentation, the company has explained the reasons behind a series of setbacks it faced over the past few months.
SpiceJet has laid out a detailed account of "what went wrong" in its operations over the past few months in an investor presentation on Friday.
As it grapples with financial troubles, the budget carrier attributed its current woes to a series of setbacks, including the global grounding of Boeing 737 Max aircraft, the impact of the Covid-19 pandemic, and soaring fuel prices.
In the presentation, the airline said that the grounding of Boeing 737 Max planes in 2019 was a major blow, depriving it of access to fuel-efficient aircraft and cutting off potential earnings from stock lending and borrowing deals.
The situation worsened with the onset of the Covid-19 pandemic, which brought passenger traffic to a halt in 2020, SpiceJet said. Despite a gradual recovery in travel, restrictions continued throughout 2022, significantly denting the company’s revenues and forcing aircraft to be grounded due to missed lease payments.
SpiceJet also pointed to a sharp rise in fuel prices, with Brent crude oil peaking at $120 per barrel and aviation turbine fuel prices hitting a record high in June 2022. This combination of challenges, the airline said, led to a severe cash paucity.
Fleet and Financial Struggles
The airline’s operational fleet has shrunk dramatically from 74 aircraft in 2019 to just 28 in 2024. SpiceJet noted that 36 planes remain grounded due to outstanding payments and funding issues. The airline also faces mounting costs, including higher working capital expenses and fixed airport rentals, which have exacerbated its financial woes.
As of now, SpiceJet's outstanding liabilities total up to Rs 3,700 crore, which it owes to lessors, engineering vendors, and suppliers. Additionally, it has Rs 650 crore in unpaid statutory dues, according to the presentation.
To address these challenges, the airline is looking to raise Rs 2,500 crore through a qualified institutional placement, along with Rs 736 crore from warrants and promoter funds. The funds will be used to unground planes, settle liabilities, and bring in new aircraft.
Recent Setbacks
SpiceJet's troubles have been compounded by several incidents in recent months. On Sept. 4, Delhi airport operator DIAL reportedly asked the airline to clear its dues at the earliest. While SpiceJet insisted that its payment obligations were being met on schedule, sources said DIAL remained concerned about pending amounts.
In late August, the airline placed 150 cabin crew members on a temporary three-month furlough, citing a reduced fleet size and the ongoing lean travel season. This followed heightened regulatory scrutiny, with the Directorate General of Civil Aviation placing SpiceJet under enhanced surveillance amid concerns over its operations.
The airline also faced an issue in Dubai when passengers were barred from boarding a flight on Aug. 29 due to unpaid dues to the airport. A similar incident occurred earlier in the month at Mumbai airport, where SpiceJet had to resolve a financial issue to avoid disruptions.
Court Orders And Profit Decline
Adding to the airline’s troubles, the Delhi High Court, on Aug. 14, ordered SpiceJet to ground three engines and hand them over to the lessors after the carrier failed to meet its lease terms. The court’s directive came as the lessors sought to recover their engines after terminating the lease agreements.
Meanwhile, SpiceJet reported a 20% decline in net profit for the June quarter, despite posting back-to-back profitable quarters. Revenue for the three-month period dropped 15% year-on-year, adding to the financial strain. The airline is banking on its Rs 3,000 crore fundraiser through a QIP, expected to be completed in September, to stabilise its finances.
Ongoing Controversy and Insolvency Pleas
SpiceJet’s troubles have extended to passenger complaints and legal battles. In June, the airline faced criticism after passengers were made to sit inside a plane without air conditioning during an intense heatwave in Delhi. The airline later clarified that the AC system was working during the flight but had struggled to cope during boarding.
In May, SpiceJet was hit with an insolvency plea by Engine Lease Finance BV over unpaid dues of over $12 million. The case is currently being heard by the National Company Law Tribunal, with SpiceJet seeking more time to respond to the claims.
Shares of the company were trading 2.52% lower at Rs 61.40 per share, compared to a 1.28% decline in the BSE Sensex as of 3:12 pm. The stock has risen 2.25% year-to-date and 54.91% over the past 12 months.
