SpiceJet has wrestled with multiple issues in its 17 years of operations. But will it be able to surmount the latest hit? Image Credit: AFP

Dubai: Is another Indian airline heading for financial trouble?

Spicejet, India’s second-largest low-cost carrier, has been through multiple ups and downs over nearly 20 years. The airline is once again struggling with a mounting debt-load and surging costs after the pandemic.

Since the COVID-19 outbreak last year, the airline has repeatedly defaulted on payments. Earlier this month, an Indian court ordered the winding up of SpiceJet and asked the official liquidator to take over the low-cost airline’s assets in a case related to non-payment of unpaid dues of around $24 million to Credit Suisse AG.

The airline reportedly failed to pay the amount to the Swiss MRO firm SR Technics for the maintenance and repair of aircraft engines, modules, components, assemblies, and parts under a contract dated November 24, 2011. In 2012, the MRO firm entered into a financing deal with Credit Suisse under which it assigned all its current and future rights to claim payments.

“SpiceJet has clearly had a challenging past and continues to have a challenging present as well,” said Mark D. Martin, CEO of Martin Consulting, an aviation safety firm. “The airline has been out of bankruptcy nearly five times - and has been in financial crisis more than any airline in its 17-year existence.

“Unfortunate as it is, SpiceJet has needed financial rescue almost every five years either by an investor, a bank or the promoter has had to raise money themselves in order to keep the airline afloat."

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Change of owner and fortunes

SpiceJet, which currently has a negative net worth of around $450 million, was co-founded by Ajay Singh in 2005. Over the following few years, the airline received investments from Tata Sons and a private equity firm led by billionaire Wilbur Ross.

The turning point for Spicejet came in 2010 when Singh sold a majority stake in the airline to Kalanithi Maran of Sun TV for about $98 million. Immediately after Maran’s takeover, Spicejet reported profits in 2010 and 2011 after a decade of losses.

With Maran at the helm, Spicejet aggressively expanded its fleet and started flying more routes, using heavy discounts to lure passengers. Although this strategy had some short-term benefits, Spicejet was bleeding cash and it was quickly looking like the airline would be one of the first casualties in an all-out price war that ensued in India’s low-cost trvel space.

That’s when Singh came to the carrier’s rescue by acquiring a 58 per cent equity from Maran in January 2015. “The Marans were strategic investors,” said Martin. “They left the airline to managers to run it, like it was managed before, as they felt that was both the smart and mature thing to do.”

Back to Singh

After Singh’s return, SpiceJet was on the growth trajectory again and even signed a $22 billion deal with Boeing for up to 205 Boeing 737 MAX aircraft in 2017. While the grounding of the aircraft stalled the expansion efforts, the airline was about to run into some good fortune.

Ajay Singh, Chairman of Spice Jet
Not all industry participants share Singh’s optimism.

The spectacular collapse of Jet Airways – once India’s largest airline – gave Spicejet the chance to grow its fleet along with allocations at Jet’s Mumbai and Delhi hubs. “The Indian government has gone out of its way to help and support SpiceJet and, in contrast, has not done much for other Indian carriers,” said an airline industry veteran, who declined to be named.

“Furthermore, most airline policies that have come into existence - including the Emergency Credit Line Guarantee Scheme (ECLGS) - have been created all along for the benefit of SpiceJet. It was so obvious that Jet had to be shut down so that SpiceJet could look stronger in the market.”

Pandemic suffering

The airline was hit particularly hard during the pandemic, especially after the imposition of state-wide lockdowns that decimated domestic travel. Spicejet mostly relied on its cargo unit – SpiceXpress – to offset some of the losses.

In its latest quarter, the carrier’s loss widened to $75.5 million, compared to the same period a year earlier, with higher fuel costs hurting margins. SpiceXpress, which reported a 5 per cent quarter-on-quarter growth, was the only bright spot.

“We have made excellent progress in our recovery and I expect this trend to continue forward in the coming quarters,” said Ajay Singh, Chairman and Managing Director, SpiceJet. “The settlement with key lessors, the return of the 737 MAX in the current quarter, transfer of the logistics business and some very significant announcements lined up soon are all positive tailwinds that should have a significant impact on our long term plans.”

“The question is, is this the end of the road for SpiceJet?,” said Martin. “It does seem very likely unless further capital is infused in by its promoter Ajay Singh and the Boeing Max fleet starts to pay back and help wipe the slate clean of all losses. Despite it pushing itself this far and for this long, SpiceJet has accumulated a tremendous amount of debt.”