DH Deciphers | The ramifications of SpiceJet's fundraise

Earlier this week in a stock exchange filing SpiceJet informed that its has raised Rs 3,000 crore through Qualified Institutional Placement and is set to receive additional Rs 736 crore from a previous funding round. This announcement triggered a lot of speculation about the changing fortunes of the airline and how it could arrest the emerging duopoly in the country’s aviation sector.

In this edition of DH Deciphers, Abhilash Reddy, delves into the financial baggage SpiceJet is still carrying and if the fundraise can put it back in the race to capture more of the Indian skies.

What is SpiceJet’s status today in Indian aviation?

In 2019, SpiceJet was the second biggest player in the domestic sector. This status has shrunk to a market share of 2.3 per cent as of August this year, which is also a come down from its position in January this year when it still had a 5.6 per cent share. Its loss was Indigo and Air India’s gain, with them snapping up 2.2 per cent and 2.5 per cent respectively. With this pick up Indigo’s market share has gone up to 62.4 per cent and that of Air India’s to 14.7 per cent.

What are the financial woes the airline is still fighting?

As of June 30, 2024, the airline's liabilities to lessors, vendors, financiers, and other creditors stands at Rs 3,781.4 crore and Rs 290 crore owed to airports. Its current and non current borrowings stood at Rs 1152.1 crore in FY24.

Additionally, the airline has Rs 580.33 crore in contingent liabilities, the payment of which depends on the outcome of legal cases legal cases filed against it in various consumer courts and forums, outcome of disputes related to GST, provident fund dues for international workers, service tax issues, and show-cause notices for IGST, customs, and tax deducted at source (TDS) claims.

Will the fundraise ease the burden?

Going by the preliminary placement document filed with the BSE, it will alleviate only a small part of the dues. The company proposes to take care of statutory dues of Rs 601.5 crore in the current fiscal year (FY), settlement of creditor dues of Rs 750 crore to aircraft and engine lessors, engineering vendors in FY25 and FY26, with the proceeds. This apart, Rs 118.9 crore will go to cover employee dues, and Rs 150.3 crore for outstanding liabilities to airports and related payments, Rs 410 crore for ungrounding and maintenance of the existing fleet.

What is SpiceJet’s fleet size presently and how does it plan to expand it?

SpiceJet currently has a total fleet of 58 aircraft, of which 36 are grounded, primarily due to unpaid dues to aircraft lessors and lack of maintenance caused by financial constraints. This fleet size includes 13 Q400 aircraft previously financed by Export Development Canada (EDC), but now owned by SpiceJet as part of the settlement to clear its debts of Rs 755 crore with EDC.

The airline plans to unground 28 aircraft to support its future growth initiatives. Additionally, SpiceJet has entered into a purchase agreement with Boeing for 155 B737 MAX aircraft, of which 8 have been delivered, with 147 yet to be delivered. From the funds raised Rs 370 crore will be deployed for the new fleet induction. The airline’s chairman and managing director, Ajay Singh, has reportedly said that he plans to take the fleet size to 100 aircraft by the end of 2026.

What could SpiceJet’s operational turnaround do for Indian skies? What do analysts say?

Many have cheered SpiceJet’s fundraise and the possibility of it flying big soon as good news for Indian aviation. The fact that Indigo and Air India are the only two big domestic players is seen as an unhealthy state of affairs. However, not everybody is convinced that it's a rosy horizon yet.

“This close to Rs 4,000 crore fund-raise should help clear some of its dues, but it's not just about bringing the airline back on track. It's also about winning back credibility with lessors and leasing companies. Over the years, SpiceJet has earned the worst reputation with lessors and leasing companies due to defaults and poor maintenance practices. It will take much more than Rs 4,500 crore to regain the trust of leasing companies and restore SpiceJet's operational fleet. It has to be seen whether SpiceJet has the level of credibility for lessors to underwrite 100 aircrafts which it is aiming to have by FY26,” argued aviation observer, Mark Martin, founder and chief executive officer of Martin Consultancy.