Monday, November 08, 2021

SpiceJet’s liquidity turbulence hits world’s largest aircraft leasing companies

Some of the world’s largest aircraft leasing companies have been hit by SpiceJet’s liquidity crunch, according to a Business Standard report.

According to the report, these aircraft leasing companies are unable to repossess aircraft they had leased out to SpiceJet as the airline has not paid its tax dues. Due to this, the tax authorities have refused to grant a ‘no objection certificate’ to SpiceJet to give back the leased aircraft to its lessors.

The report reveals that SpiceJet wants to return at least 13 Boeing 737 aircraft to bring down its operating costs.

At the core of the issue is a tax demand by the tax authorities under the Goods and Services Tax (GST) regime – the report stated that SpiceJet failed to pay GST dues worth ₹285 crore.

According to the company’s financial results as of March, 2021, SpiceJet had ₹320 crore in the form of cash and cash equivalents. The liquidity crunch seems to be an immediate and critical issue for the company. In comparison, its rival IndiGo had a balance of ₹509 crore as of March 2021, and ₹1,366 crore as of September, 2021.

The airline filed a petition in the courts to allow it to pay the dues in 10 installments, which was countered by the tax authorities stating that there is no provision in the GST Act that allows payment in instalments.

As such, the non-payment of GST dues is now preventing SpiceJet from trimming its operating costs. For an airline, lease rentals on aircrafts are one of the core operating costs.

As of June 2021, lease rentals accounted for over 10% of SpiceJet’s total operating costs, increasing by more than six times when compared to the same period last year.

SpiceJet’s total fleet stood at 100 at the end of March, 2021, falling from 114 a year ago. This is still a third more than the 75 aircraft it had in its fleet in 2019, though.

Analysts at Centrum Institutional Research estimate that this number will come down to 90 next year, and with it, the lease rentals should come down proportionately, too.

08/11/21 Rounak Jain/Business Insider

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