When SpiceJet declared its Q4 and full-year results last week, the focus quickly shifted on the auditor’s remark of “significant” doubt over the entity being a going concern. This was quickly followed by news of the Airports Authority of India pushing the airline on Cash & Carry mode before reversing the decision.
This comes within days of the airline intimating the stock market about being designated carrier for the UK and USA. The continuation of a cap on fares and capacity, along with the lack of demand uptick puts a serious question mark on the industry’s ability to continue as before, with more stress on airlines like SpiceJet who have accumulated losses.
While airlines have looked at ways to reduce costs by Leave Without pay (LWP) and salary cuts, except SpiceJet, every airline is backed by a group which has interests in other businesses. While Air India is backed by the government, IndiGo is partly backed by InterGlobe group, Vistara and AirAsia India has a majority holding with the TATA’s and GoAir is from the stable of Wadia group – which has diverse interests.
Even smaller airlines like Star Air and Trujet have promoter groups with diverse interests. That leaves only SpiceJet—to not have a set of businesses at the back to fund or raise cash when the need arises. While this is worrisome, this could also act as a catalyst for a fight for survival.
SpiceJet has a cash balance of less than Rs 50 crore. This is a small percentage of what market leader IndiGo has on its books. The airline has also admitted that it has deferred some payment to various parties including vendors and expressed inability to determine all such cost and penalties. With a low cash balance and unclear revenue stream, the future does look bleak.
In what could be a déjà vu, the company has a negative net worth of Rs 1,579.2 crore as of March 31, 2020. Ironically, the company has nearly been there with a negative net worth of Rs 1,485 crore as at March 31, 2015 - the first quarter after it changed hands, coming out of the near-death experience in December 2014. However, the net worth could further decline by over Rs 700 crore if the Boeing compensation is left out.
03/08/20 Ameya Joshi/Moneycontrol.com
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This comes within days of the airline intimating the stock market about being designated carrier for the UK and USA. The continuation of a cap on fares and capacity, along with the lack of demand uptick puts a serious question mark on the industry’s ability to continue as before, with more stress on airlines like SpiceJet who have accumulated losses.
While airlines have looked at ways to reduce costs by Leave Without pay (LWP) and salary cuts, except SpiceJet, every airline is backed by a group which has interests in other businesses. While Air India is backed by the government, IndiGo is partly backed by InterGlobe group, Vistara and AirAsia India has a majority holding with the TATA’s and GoAir is from the stable of Wadia group – which has diverse interests.
Even smaller airlines like Star Air and Trujet have promoter groups with diverse interests. That leaves only SpiceJet—to not have a set of businesses at the back to fund or raise cash when the need arises. While this is worrisome, this could also act as a catalyst for a fight for survival.
SpiceJet has a cash balance of less than Rs 50 crore. This is a small percentage of what market leader IndiGo has on its books. The airline has also admitted that it has deferred some payment to various parties including vendors and expressed inability to determine all such cost and penalties. With a low cash balance and unclear revenue stream, the future does look bleak.
In what could be a déjà vu, the company has a negative net worth of Rs 1,579.2 crore as of March 31, 2020. Ironically, the company has nearly been there with a negative net worth of Rs 1,485 crore as at March 31, 2015 - the first quarter after it changed hands, coming out of the near-death experience in December 2014. However, the net worth could further decline by over Rs 700 crore if the Boeing compensation is left out.
03/08/20 Ameya Joshi/Moneycontrol.com
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