Thursday, August 04, 2022

Once the turnaround man, Ajay Singh may now need an external hand—and capital—to pull SpiceJet out of turbulence

In India’s aviation industry, Ajay Singh has quite a stellar reputation as a turnaround master. After all, in 2014, when SpiceJet, currently India’s third largest airline by market share, was on the verge of shutting down, Singh had bought the airline before making a turnaround in its fortunes. By 2015, a year after he purchased it, SpiceJet was the world’s best-performing airline stock, after it soared some 340 percent.

Singh had also settled dues of some Rs2,200 crore that the airline owed in debts and built SpiceJet into India’s second-largest airline before a series of woes in the past few months pushed it into some serious turbulence. “You have to give him credit,” says Jitender Bhargava, former executive director of Air India. “He prevented an imminent collapse. But the question is—is his aggressive growth strategy responsible for the travails of SpiceJet?”

Today, Singh, the wily businessman, has his back against the wall. A series of misfortunes, including the global ban on Boeing Max aircraft, that SpiceJet owned, and the Covid-19 pandemic meant that SpiceJet has been facing some serious headwinds. Apart from disgruntled employees, including pilots, who allege that their pay hasn’t been revised to pre-pandemic levels, the airline has also had to grapple with some safety incidents in the past few months.

Between May and July, the airline saw nine incidents ranging from smoke in the cabin to the cracking of a windshield and emergency landing in Karachi, prompting India’s aviation regulator to ask the airline to fly at 50 percent of its approved flights for two months.

“SpiceJet finds itself with a fairly fragile balance sheet and this is reflected in delayed payments to suppliers, credit holds and mounting dues,” says Satyendra Pandey, managing partner of aviation advisory firm AT-TV. “This despite significant scaling down of operations. Cargo has been a success story, but how that is leveraged towards restoring the core airline to profitability remains to be seen.” As of 2021, SpiceJet had cash and cash equivalents of some Rs73 crore, while its total debt stands at over Rs9,700 crore.

That’s why Singh has swung into action quickly. On August 3, after months of turbulence, he offered a glimmer of hope after reports emerged that the airline was in talks with a Middle Eastern carrier for a partial stake sale. “The company continues to be in discussions with various investors to secure sustainable financing and will make appropriate disclosures in accordance with applicable regulations,” says an airline spokesperson.

If the sale goes through, it will bring a much-needed equity infusion into the airline, and help it stabilise before preparing for its next leg of expansion at a time when the country’s domestic aviation market has seen new entrants, bringing about more competition. Singh is also relying on his plan to hive off a cargo business that he had built up in the past two years to bring cash on the table.

04/08/22 Manu Balachandran/Forbes India

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