In some ways, SpiceJet’s current predicament is reminiscent of the crisis faced by Kingfisher Airlines. A sudden reduction of fleet leading to mass flight cancellations, and a mountain of unpaid dues triggering alarm amongst suppliers and the government, reminds one of the events that led to closure of Kingfisher Airlines.
As of now the the civil aviation ministry appears to be supportive of SpiceJet, but the real test for the airline’s chairman Kalanithi Maran is to raise funds and that too quickly.
SpiceJet says it is wrong to compare their airline with Kingfisher and is confident it will fly out of turbulence. However, the manner in which it has scaled down operations has raised fears that airline is on the brink of a collapse. It also suggests that suppliers and lessors are losing patience with the airline.
While the airline began canceling flights last month, much of its problems are older. For five consecutive quarters, the airline posted losses and mismatch between revenue and cost kept widening.
Dues have been piling up for many months now. The airline’s dues to various vendors, airports and lessors amount to about Rs 1,600 crore. SpiceJet says the figure is actually lower than that and dues have reduced since June.
There is also a mismatch of about Rs 5-10 crore daily in actual revenue earned and the amount required to meet current expenses and pending dues. The airline has been unable to bridge this gap, an aviation source said.
Lessors and banks too have exerted pressure on the airline and few months back a lender briefly froze its account until it realised the dues. The airline has faced difficulties in securing loan facilities from banks too, the source said.
Representatives of Export Development Canada (EDC), which funded the airline’s Bombardier Q 400 aircraft purchase, met Director General of Civil Aviation last week. SpiceJet has 15 planes of the type and the EDC is reported to have expressed concern over airline’s financial health and delays in loan repayment.
Nathan Nelson, chief representative of EDC in India, confirmed the meeting but declined to comment on the discussion.
SpiceJet has, however, called reports of Canadian government intervention as false.
Industry sources believe the airline has been forced to curtail operations as it has been unable to raise funds and its cash flow were getting stretched to meet dues.
Negative news surrounding the airline over the past week has led to a fall in bookings, say travel agents.
Other airlines too are reacting to the adverse news. Jet Airways management has instructed all its airport staff not to extend assistance (like accepting passengers in case of disruption) to SpiceJet on credit unless there was an approval from the chief executive officer. Jet Airways did not reply to email query on the issue.
Aviation experts, however, feel that there is still a chance of revival. Capt G R Gopinath, founder of Air Deccan said, “SpiceJet needs to be given breathing time to enable it to find an investor. The government needs to find a way to support the airline in the absence of bankruptcy protection law.”
“I feel SpiceJet will find an investor but the airline would have to be flexible while negotiating the deal,” said Amrit Pandurangi, senior director of Deloitte.
Inability to mop up funds and reduced operations over a longer period would hit revenues and market share of SpiceJet. Unit costs would also go up as fixed costs would be spread over fewer planes. The airline would find itself with surplus staff, who may then quit airline, experts fear.
Kapil Kaul of Centre for Asia Pacific Aviation said, “As of now, I don’t see SpiceJet going the Kingfisher way but any further delays in recapitalisation will lead to the logical conclusion. SpiceJet needs interim funding to make operations stable before a new investor is on board. The operating environment is positive as costs are down especially jet fuel prices and growth is likely to stable from next fiscal.”