Much discussion in the last few weeks in aviation circles has been focused on a $250 million question. The question is whether low fare airline SpiceJet, once rescued from the brink of closure by its present chairman and managing director Ajay Singh, will be able to tide over and raise the money it needs to survive this latest crisis.

Why $250 million? That is the rough estimate that CFOs, finance professionals and industry executives in the space argue is required to pull the airline back from its present abyss. Accumulated losses or dues to vendors including lessors have climbed to over ₹2,000 crore for the airline since 2020. Some of the lessors have sought deregistration (6, as this article went to press) and return of aircraft due to non-payment. Salaries of staff are being delayed and paid in a graded format with the lowest brackets paid first. Provident fund contributions of over one year to the tune of around ₹25-30 crore remain unpaid. Tax deducted at source has not been deposited for over a year. A dispute pending with Kalanithi Maran which has further financial implications for SpiceJet remains unresolved as of now.

It would not be an understatement to say that the airline today finds itself in its most dire situation since end 2014, when it changed hands from Maran to Singh. Industry CEOs and top managers say that the airline is running on empty and they are unable to understand how it has managed to survive till now. Several have been approached by top management of the airline looking for jobs.

Although, of late, Singh has been talking of bringing in funds through investment by a Gulf carrier and of a plan to offer equity to lessors in the cargo business the airline developed during the pandemic, industry observers are far from convinced either will happen or happen in time. According to sources in the airline, EY is working on the restructuring while Carlyle is currently doing an active diligence to assess the full worth of the cargo business.

Immediate help however seems to be on its way through other routes. On the 12th of September, a top level joint meeting of officials from the Ministry of Petroleum and Natural Gas, the Ministry of Civil Aviation, the oil companies and the airlines is being held to arrive at a new pricing method for aviation turbine fuel from 15th September. The move will benefit all players. Top government sources said that they are ready to fix whatever anomaly that may have willy nilly crept in. After the Jet Airways fiasco in 2019, a second airline collapse would both cost the industry severely and be a blemish on the government’s track record.

Meanwhile, SpiceJet is scrambling for survival and trying every trick in the book to bring in much needed funds. The company has recent secured ₹220 crore through the emergency credit loan guarantee scheme (ECLGS) introduced by the government post pandemic to keep businesses afloat and some of the players including SpiceJet are keen that this credit limit is enhanced to ₹1,500 crore. The Ministry of Civil Aviation (MOCA) has written to finance seeking an upward revision and many expect the limit to be raised to ₹1,000-1,200 crore. The airline has already availed of around ₹400 crore (this includes the ₹220 crore that is expected this week) through this but an increase in the limit will help it immensely at this stage. In addition to this, the airline has asked Boeing to sell two B-777s that it gave the airline as part of its compensation for the grounding of the Max and this is expected to bring in around ₹200 crore.

A fallback plan to raise funds is a proposed rights issue, the feasibility and economics of which is currently being examined by JM Financial for the carrier. According to sources, the plan is to raise a total of ₹1,000 crore through a rights issue. The details and pricing of the issue are yet to be worked out but depending on the ratio (1:1 or 1:2 or whatever is advised), this would mean Singh needs to bring in a substantial amount of money through personal funds, dilute his stake or borrow by pledging his existing shares. Readers may recall a substantial portion of the total shares held by Singh (33 crore to be precise) were sold to him at ₹2 by the Marans. He currently holds a 60% stake in the airline.

Industry observers and analysis are of the view that if Singh can ensure survival for now by either bringing in funds, reducing his own stake or even by exiting and handing over the reins to a new management as the last resort, the airline can bounce back as SpiceJet as a brand remains resilient. No matter how grim the situation on the ground is, fliers and passengers continue to board the airline and passenger load factor of the airline remains high.

As far as the long term goes - whether it is Singh or someone else who steers this ship - aviation analysts and experts argue that SpiceJet can be rescued from the fate that befell Jet Airways or Kingfisher Airlines, both of whom had graver problems on account of their full service model and design. A large part of Spicejet’s problems can be attributed to the groundings of the Max but the situation is now easing. Problems with airlines in China and Ukraine have increased the availability of Max aircraft with Boeing and SpiceJet can if it moves quick enough try to replace its old and less efficient B737-800s with new Max aircraft. This would help bring in some sale and lease back money over the next six to nine months as well as pare down costs. As of now, the airline has 13 Max, 22 B 737-800s and 30 Q400s, although like many of the players, it is flying far less than available capacity. In its better days, the airline’s fleet had reached a total of 102 aircraft but the pandemic and various other factors have taken their toll.

The jury is out on whether Singh can steer the carrier to emerge leaner and meaner as he’s hoping to. Past precedents with Jet Airways and Kingfisher have shown that once an airline starts spiraling downward, things often suddenly spin out of control. Unlike in the past, confidence in Singh’s ability to steady the shrunken and shriveled ship this time around seems shaky.

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