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-GAHANA P N (SENIOR COLUMNIST, 4 BCOMH C)
SpiceJet, the second-largest airline in India, is in troubled waters. The airline giant took a considerable backlash when a division bench of the Madras High Court upheld its December winding-up order after it failed to repay a liability of over $24 Million. This amount pertains to the airline's debt to the Swiss financial services company, Credit Suisse, for paying engine maintenance services provided by an enterprise called SR Technics over the last ten years.
The High Court heard the airline's appeal to overrule the single-judge order to liquidate the company by appointing a provisional liquidator. The division bench consisted of Justices Paresh Upadhyay and Sathi KS Kurup. They dismissed the plea stating that there was no reason whatsoever that the winding-up order must be uplifted. There were two contentions submitted by SpiceJet, of which both were dismissed without much discussion. Firstly, the airline claimed that the documents submitted by Credit Suisse were not stamped, which would make them invalid in India. Hence, the court could not take these documents on record. The second contention was concerning the dues towards SR Technics. SpiceJet claimed that these dues could be waived off as SR Technics lacked licenses and approvals from the DGCA (Directorate General Civil Aviation) to maintain engines.
However, that's not all that is wrong with the company. The odds of its survival turn against it with each day that passes by. The airline reported massive losses for two consecutive years. That, followed by the hit taken by the pandemic, brought its functioning to a near standstill. The Covid 19 effect added more to the already existing losses, leading to a massive debt default. Looking at the financials, it can be noticed that SpiceJet's losses have more than tripled since 2019. The company's chances of falling out of trouble are at an all-time low, and the country is set to lose another budget airline from the market.
Here are some of the added immediate challenges. SpiceJet has no money to pay its GST dues of Rs.285 Crores. Due to this, tax authorities in India have declined to issue a "No objection Certificate" to SpiceJet to send back 13 Boeing 737 aircrafts to its lessors. Its troubles do not just end here. The airline has lost over 3.2% of its market share since November 2020. It might be the second-largest player, but SpiceJet's share of the pie is minimal compared to the 54.3% market share of Indigo. Matters can get worse with new players entering the airline space.
The pandemic further pushes SpiceJet's revival, and rising fuel prices make the situation worse. Aviation turbine fuel prices have doubled since a year, and they make up about 40% of the airline's aggregate operating costs.
SpiceJet's Stocks have taken a huge hit too. On Wednesday, 12th January, a day after the Madras High Court Order, its stocks traded nearly at a 6-month low at Rs.63.75. On the other hand, Indigo's stocks traded in green at Rs.2081.40, and Jet Airways traded in red at Rs.88, despite it being a non-functioning airline.
This is not the first time the airline has been in trouble. Founded in 2005, SpiceJet was co-founded by Aja Singh to make air travel affordable for all Indians. Singh exited the airline in 2010. It suffered a massive loss of over $5n2 Million in 2012 due to crude oil prices worldwide. In 2015, it was on the verge of shutting down due to added losses and debts. Singh saved it from its downfall by buying a 58% stake at a low price. With the airline business having taken an enormous beating, SpiceExpress, the logistics arm, has helped the company barely survive during the pandemic and debt crisis. The airline revenue fell by 26% to $294.8 Million as of 31st March 2021.
It seems as if there is little to no hope of SpiceJet jumping out of this mess. The airline planned to raise Rs.2500 Crores as of July 2021 to strengthen its balance sheet numbers. However, this seems nearly impossible as raising funds would be difficult owing to its debt crisis.
With everything falling apart, it looks like SpiceJet no longer has the spark it had when it first started. However, there is a small ray of hope for its survival. The Madras High Court has postponed the operation of the winding-up order till 28th January, thus, giving the airline the time and opportunity to challenge the ruling in the Supreme Court. However, only time can tell whether the low-cost carrier can overcome its obstacle and live on.
REFERENCES:
· Vyas, M., & Mishra, M. (2022). Madras HC upholds winding up plea against SpiceJet by Credit Suisse; gives time to airline to challenge ruling in SC. Retrieved 16 January 2022, from https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/madras-hc-upholds-winding-up-plea-against-spicejet-by-credit-suisse-gives-time-to-airline-to-challenge-ruling-in-sc/articleshow/88839089.cms
· It’s not just COVID-19 — SpiceJet’s survival is getting challenged by rising costs, low cash, and new players with deep pockets. (2022). Retrieved 16 January 2022, from https://www.businessinsider.in/business/corporates/news/spicejet-is-finding-difficult-to-survive-with-rising-costs-low-cash-and-new-players-with-deep-pockets/articleshow/88742146.cms
· SpiceJet shares trade near 6-month low. (2022). Retrieved 16 January 2022, from https://www.thehindubusinessline.com/markets/stock-markets/spicejet-shares-trade-near-6-month-low/article38250883.ece
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