Barring Air India, if there is an Indian airline that runs into turbulence often, it is SpiceJet.
Since its founding in 2004, the Gurugram-headquartered airline has changed hands a few times and has run into massive losses regularly, even being on the verge of shutting down, before staging remarkable turnarounds. This year isn’t any different . In the wake of the economic slowdown and the Covid-19 crisis, SpiceJet finds itself in familiar territory with mounting losses and net worth eroding significantly.
On July 29, the airline reported its highest ever quarterly loss of ₹807.07 crore in the March-ended quarter compared to a net profit of ₹56.29 crore in the year-ago period. The airline reported a full-year loss of ₹934.76 crore in 2019-20 compared to ₹316.08 crore in FY19. The only silver lining was that its revenue rose by 42.65 percent to ₹13,206.42 crore.
What is worrisome, however, is that like 2014—when SpiceJet stalled operations before a new promotor stepped in—the airline’s net worth has entered into negative territory at ₹1,579.2 crore as of March 31. “The company has incurred a net loss during the current and previous year, and its current liabilities exceeded its current assets in the balance sheet to date. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the airline’s ability to continue as a going concern,” says SR Batliboi and Associates Llp, the company’s auditors, which had been raising similar concerns during the past quarters.
However, this time, it isn’t just SpiceJet that seems to be on the verge of crash-landing. The aviation sector itself is in the doldrums due to the impact of the coronavirus pandemic, among other factors.
IndiGo, India’s largest airline by market share and fleet size, reported a net loss of ₹2,844.3 crore for the quarter ended June 30. It had posted a net profit of ₹1,203.1 crore in the corresponding quarter last year. Revenue from operations plunged by over 91 percent to ₹766.7 crore during the quarter.
“The aviation industry is going through a crisis of survival and, therefore, our cash balance remains our number one priority. However, we also recognise that major disruptions offer companies opportunities for improvement in product, customer preference, costs and employee engagement. We have built a strong team that is working on multiple fronts to ensure that we emerge from this crisis stronger than ever,” says Ronojoy Dutta, CEO of IndiGo.
It may, however, be easier said than done. “We cannot say with certainty when the aviation sector will be back to where it was,” says Mahantesh Sabarad, head of retail research at SBICAP Securities, the stockbroking arm of State Bank of India. “The only option was a bailout from the government, but that is unlikely with the government itself struggling with an airline. And, like many other sectors, the government is only likely to offer liquidity measures either through fiscal or monetary policies.”
17/08/20 Manu Balachandran/Forbes India
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Since its founding in 2004, the Gurugram-headquartered airline has changed hands a few times and has run into massive losses regularly, even being on the verge of shutting down, before staging remarkable turnarounds. This year isn’t any different . In the wake of the economic slowdown and the Covid-19 crisis, SpiceJet finds itself in familiar territory with mounting losses and net worth eroding significantly.
On July 29, the airline reported its highest ever quarterly loss of ₹807.07 crore in the March-ended quarter compared to a net profit of ₹56.29 crore in the year-ago period. The airline reported a full-year loss of ₹934.76 crore in 2019-20 compared to ₹316.08 crore in FY19. The only silver lining was that its revenue rose by 42.65 percent to ₹13,206.42 crore.
What is worrisome, however, is that like 2014—when SpiceJet stalled operations before a new promotor stepped in—the airline’s net worth has entered into negative territory at ₹1,579.2 crore as of March 31. “The company has incurred a net loss during the current and previous year, and its current liabilities exceeded its current assets in the balance sheet to date. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the airline’s ability to continue as a going concern,” says SR Batliboi and Associates Llp, the company’s auditors, which had been raising similar concerns during the past quarters.
However, this time, it isn’t just SpiceJet that seems to be on the verge of crash-landing. The aviation sector itself is in the doldrums due to the impact of the coronavirus pandemic, among other factors.
IndiGo, India’s largest airline by market share and fleet size, reported a net loss of ₹2,844.3 crore for the quarter ended June 30. It had posted a net profit of ₹1,203.1 crore in the corresponding quarter last year. Revenue from operations plunged by over 91 percent to ₹766.7 crore during the quarter.
“The aviation industry is going through a crisis of survival and, therefore, our cash balance remains our number one priority. However, we also recognise that major disruptions offer companies opportunities for improvement in product, customer preference, costs and employee engagement. We have built a strong team that is working on multiple fronts to ensure that we emerge from this crisis stronger than ever,” says Ronojoy Dutta, CEO of IndiGo.
It may, however, be easier said than done. “We cannot say with certainty when the aviation sector will be back to where it was,” says Mahantesh Sabarad, head of retail research at SBICAP Securities, the stockbroking arm of State Bank of India. “The only option was a bailout from the government, but that is unlikely with the government itself struggling with an airline. And, like many other sectors, the government is only likely to offer liquidity measures either through fiscal or monetary policies.”
17/08/20 Manu Balachandran/Forbes India
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