Wednesday, December 08, 2021

Why SpiceJet is lingering on the brink

Can lightning strike twice? Low-cost airline carrier SpiceJet founder Ajay Singh must surely be hoping so, to turn around and save the airline from doom a second time around. Or will the ominous winds battering the aviation industry score a kill again?

On Tuesday, Madras High Court ordered the winding up of the beleaguered airline for failing to pay dues under the Companies Act. The case was filed by Credit Suisse AG on behalf of SR Technics, a globally leading MRO (maintenance, repair and overhaul) services provider. The MRO agreement with the Gurgaon-headquartered airline was signed in 2011. The case was filed in 2015 after SpiceJet did not pay up for the services—the figure, including interest now, calculated at about 24 million dollars.

However, this doesn't mean that the airline will shut down operations right away. The court itself has put the order in abeyance for three weeks, pursuant to SpiceJet coughing up 5 million dollars within two weeks.

The airline says it will take remedial measures, including appealing against the verdict. “The company believes it has a good case on merits and is hopeful of having favourable outcome in the appeal,” it said in a statement to the Bombay Stock Exchange, where it is a listed company.

For Ajay Singh, it will be deja vu. After founding the airline in 2005, the Marans (of DMK-SunTV fame) had taken over the airline a few years later. However, the airline's financial health soon deteriorated, forcing Singh to make a comeback in 2015, almost a la Steve Jobs at Apple.

But here, the story diverges. Despite some optimisation of revenue and good going, which saw the airline become India's second biggest domestic airline soon, the script faltered soon enough, once an economic slowdown and then COVID-19 hit the country. Singh's born-again aviation dream has been lurching through funding issues since then. While market leader Indigo took comfort in its cash war chest and sheer market dominance, Vistara and AirAsia India survived thanks to the deep pockets of promoter company Tatas – Air India, of course, had the taxpayer's money doled out to cover its ever-increasing losses.

That left Singh, for all his high connections with the ruling party, in the lurch. On one level, he tried adapting by coming up with innovations like insurance policies and focusing on cargo operations, but that was barely a band aid on a gaping wound. Despite salary cuts and stopping payments to vendors, the airline has been in a schism for some time now.

And unfortunately, that has also started showing in its marketshare and passenger load. SpiceJet entered 2021 as India's second biggest domestic airline, behind only Indigo and way ahead of the likes of Air India and Tata-Singapore Airlines' joint venture Vistara. But, right now, it has shrunk down to the fourth position. Staff is said to be disgruntled at the pay cuts they have faced since COVID-19, and many believe once Jet Airways 2.0 and debutante Akasa Airlines start recruiting, a mass attrition may well be on the cards.

The grounding of Boeing's 737 Max two years ago also impacted SpiceJet badly, as it operated quite a few of those aircraft type. But that could now offer a window of opportunity as Singh desperately looks around for funds – the planes are fit to fly and if Omicron doesn't vitiate the pandemic situation further, this would be handy when travel demand picks up further. It could also get some likely compensation over the issue from the Seattle-based plane maker.

08/12/21 K. Sunil Thomas/The Week

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