SpiceJet clears all AAI dues amid scrutiny over repeated snags

Amid intense scrutiny from the government over recent malfunctions in planes of low-budget carrier SpiceJet Ltd, the company says it has cleared all outstanding principal dues of the airport operator Airport Authority of India (AAI). This led to a sharp rally in the Gurugram-based airline's stock, which surged 10.43% to close at the day’s high of ₹44.40.

SpiceJet says it'll no longer remain on "cash and carry" at AAI-run airports in India, and will revert to an "advance payment mechanism" for daily flight operations. After clearing principal dues, the operator will now release SpiceJet’s ₹50-crore bank guarantee, boosting its existing liquidity.

The dues to vendors was a concern for SpiceJet for quite some time now. Notably, in its financial assessment carried out in September 2021, the DGCA had said SpiceJet is operating on "cash and carry" and suppliers were not being paid regularly, which lead to a shortage of spares and frequent invoking of MELs (minimum equipment lists) releases. MEL allows an aircraft to fly even if something is broken, but only under specific conditions.

The cash and carry arrangement is imposed if an airline is unable to clear airport dues. Under this, the credit facility is withdrawn by the AAI, and the carrier has to pay upfront to use airports.

Additionally, it plans to raise fares by 10-15% in the wake of the rising cost of operations due to high aviation fuel prices and a weak rupee. The airline says it has absorbed the rising cost of fuel in the past few months, despite a 120% rise in its price since June 2021.

The Ajay Singh-led airline, along with other domestic carriers, has reported many incidents of technical snags on flights off-late. This prompted the Directorate General of Civil Aviation (DGCA) to conduct spot checks and even issue strict guidelines.

On July 28, 2022, the DGCA ordered the budget carrier to restrict its flights to 50% of the number of departures approved by the aviation regulator for eight weeks over repeated technical glitches. The aviation watchdog said SpiceJet failed to establish a safe efficient, and reliable air transport service under the aircraft rules.

SpiceJet, however, says the DGCA order will not have any impact on its flight operations. It said due to the current lean travel season, SpiceJet — like other airlines — had "already rescheduled its flight operations".

The DGCA order to curtail the number of flights came weeks after it issued a show-cause notice against the airline over repeated incidents of "degraded safety margins" on July 6, 2022.

The civil aviation ministry has said in parliament that it grounded 10 aircraft of SpiceJet after conducting a total of 53 spot checks. The DGCA carried these spot checks on 48 aircraft of the carrier between July 9 and July 13, and “no major safety violation” was found, said the ministry, adding 10 aircraft were grounded as a "safety measure". The airline operates a fleet of 99 aircraft, which includes Boeing 737 Max, Bombardier Q400s and freighters.

It is notable that the DGCA carried out similar regulatory audits of Vistara, Blue Dart, Alliance Air and IndiGo too. Several malfunctions were also reported with these airlines in the recent past.

The SpiceJet stock today touched an intraday high of ₹45.4 (12.66%) and outperformed the sector by 7.32%. The stock has been gaining for the last three days and has risen 20.16% in the period.