Home / Financial News / Now, govt comes to SpiceJet’s rescue

Now, govt comes to SpiceJet’s rescue

The government has approved a series of measures to bail out cash-strapped airline SpiceJet, which is in danger of having to suspend operations. After hectic discussions that ran late into the night on Monday, the ministry of civil aviation said on Tuesday that banks could be requested to give working capital loans based on assurances by the promoter.

“Banks or financial institutions to lend up to Rs 600 crore backed by a personal guarantee of the chairman, SpiceJet. This should be paid immediately after securing the long-term investment which will take around 8 weeks to consummate,” the ministry said in a statement.

Civil aviation ministry officials further said the finance ministry would be requested to permit external commercial borrowings (ECBs) for working capital as a special dispensation, as had been done in 2012 when a similar crisis had arisen in the aviation sector. The government had at the time raised the ceiling on ECBs for the sector to offer a reprieve to Kingfisher Airlines (KFA). KFA, however, could not raise any resources at the time and had to shut operations eventually.

The suggestions were approved by Civil Aviation Minister Ashok Gajapati Raju Pusapati “to tide over the crisis and to keep SpiceJet from shutting down, as it would be a major setback to the Indian civil aviation sector”. The reprieve, however, has been granted on the condition that SpiceJet give a commitment of raising sufficient capital within a short period of time.

Overturning directions issued by the regulator, Directorate General of Civil Aviation (DGCA), the ministry of civil aviation also lifted the 30-day booking restriction imposed on the ailing carrier. The ministry said airport operators would be requested to give 15 days to the airline to make payments. SpiceJet has dues of around Rs 200 crore towards the Airports Authority of India (AAI) and another Rs 80 crore towards other airport operators. The airline could be put on cash-and-carry mode if it fails to settle dues.

Public sector oil companies will also be requested to give credit for up to 15 days. “The Public Sector Oil Companies would be requested to give credit for upto 15 days. (The daily off-take of the airlines is about Rs 5 crores. This would amount to about Rs 75 crores. The dues pending is only Rs 14 crores as on 15-12-2014)” the ministry said in a statement.

Raju and minister of state Mahesh Sharma held a meeting with the petroleum minister and officials from the finance ministry on Monday following large-scale disruption of SpiceJet flights.

On Tuesday afternoon, Sharma had said government departments were working to find a solution to the issue.

“Something is being worked out to resolve the SpiceJet crisis in the larger interest of passengers. All departments are working to find a solution. The government cannot take out solutions for an individual airline but for the entire industry,” said Sharma.

Kapil Kaul, CEO of Centre for Asia Pacific Aviation, said, “I welcome the government’s overall response, which is now helpful after a couple of bad decisions earlier. However, I am not certain and clear about the government’s stand. Seven to 10 days time given, if true, is unlikely to change things. Not sure how such large funding will be secured in such short time, especially as the promoter seems unwilling. Not sure how long oil companies and AAI will offer unsecured credit. Without immediate and significant funding, I see this as a closed case. SpiceJet needs to come clean on the funding prospects, including timelines.”

On Tuesday morning, the airline was unable to fuel its aircraft in Mumbai, Delhi and Hyderabad, resulting in cancellations and rescheduling of flights. “There was some temporary operational issue. Flights have now resumed,” a SpiceJet spokesperson said in response to a query.

The stability of operations now will depend on whether the airline is able to secure investments quickly to make payments to suppliers and vendors. Bookings have been hit following daily flight cancellations. SpiceJet has cancelled 1,861 flights between December 8 and December 31, 2014.


Check Also

Debate on Article 370 marked by posturing, says RSS

The Rashtriya Swayamsevak Sangh (RSS) is recalibrating its discourse on its demand ...

Street cautiously positive on JSPL post coal mine

Jindal Steel and Power (JSPL), which witnessed its lowest point in the ...