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SpiceJet needs fresh capital to sustain ops

NEW DELHI : Budget airline SpiceJet Ltd has so far managed to weather the storm, but it is in need of recapitalization to successfully emerge out of the turbulence, and compete with existing and new airlines, said industry watchers.

The carrier has faced a series of headwinds for more than three years now, including the grounding of the fuel-efficient Boeing 737 MAX in March 2019 following two fatal accidents involving the plane. Then the Covid outbreak in early 2020 severely impacted India’s aviation sector, and pushed all airlines to a temporary air pocket.

Once the Covid-related stress started easing, SpiceJet faced a regulatory restriction of using only half of its fleet capacity following a series of technical glitches. Then, it had to de-register six aircraft in August due to “non-payment of dues” to lessors. It also had to postpone earnings announcements for the March and June quarters after a ransomware attack in May. While the earnings were issued on 31 August, it sought an extension of the timeline to convene its annual general meeting. It is also witnessing a sense of unrest among employees as staff salaries are still to be restored to pre-covid levels.

“The key is capital infusion. So far, SpiceJet has somewhat been lucky to get funding for survival just in the nick of time. It has the foundation to bounce back but the question is how soon it gets liquidity,” an expert said, requesting anonymity. “The promoter is trying to get funds for the airline, but so far, it has not materialized into anything substantial. Recapitalization will be crucial if the airline wants to steer ahead in this competitive space.”

While the challenging environment has been a concern for the airline, there are some solid tailwinds such as its growing cargo capacity and connectivity in Tier-2 and Tier-3 cities. In fact, passenger load factor, or capacity utilization, has been the highest for SpiceJet in 2022.

“Cargo and monopoly routes are two bright spots for SpiceJet. Discontinuation of fare caps may benefit SpiceJet in gaining more revenue from routes where it has a near monopoly or high number of flights especially in Tier-2 and Tier-3 cities,” said another analyst, also seeking anonymity.

In its post-earnings statement, Spicejet promoter Ajay Singh said the focus will be on regional and international routes with the Boeing MAX aircraft.

In a reply to query from Mint, a SpiceJet spokesperson said the airline has implemented a “planned” strategy to replace older aircraft with new MAX planes in a phased manner. It will induct around 20 such planes by December 2023. The recent de-registration of four aircraft was part of an early termination agreement.

SpiceJet is allowed to operate up to 50% of its capacity until October, but it is confident of resuming full operations once the curbs are lifted. “Don’t know if it is a case of bad timing, but somehow, SpiceJet has frequently found itself in a mess. However, its operations are comparatively smooth since it started operating at 50% of the capacity,” said a senior official.

Singh said he was “optimistic” about the airline’s future and is engaging with investment bankers to raise $200 million. The airline also plans to hive off its cargo business, SpiceXpress, this quarter which will help it get some liquidity. It is expected to get around 225 crore under the Emergency Credit Line Guarantee Scheme, which may be used for clearing statutory dues and lessor payments.

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