BackSpiceJet fate in government hands as airline seeks help
Govt says a decision will be taken considering wider interest of passengers
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New Delhi: The government will decide on the future of SpiceJet Ltd after the budget airline, which cancelled flights and delayed paying staff this month, sought state support amid concerns it may wind down operations.
A decision will be taken “considering wider interest of passengers," Mahesh Sharma, junior civil aviation minister, said in New Delhi. The airline sought state relief and Sharma’s ministry will seek opinion from the Prime Minister’s Office, the finance ministry and the oil ministry, he said. All flights were operating normally today, the company said in a statement on Monday before presenting a financial plan to the government.
The situation at SpiceJet, owned by media billionaire Kalanithi Maran, highlights the difficulties of airlines in India, where low base fares and intense competition have contributed to over $10 billion in loss in the last seven years. Kingfisher Airlines Ltd, started by liquor baron Vijay Mallya, was grounded in 2012 after accumulating $1.4 billion of debt.
“Without significant and immediate promoter funding, I see no future," Kapil Kaul, Capa Centre for Aviation’s South Asia chief executive officer, said in an e-mail. “Two airline closures in the last few years and a very challenged SpiceJet highlights the massive structural challenges, which includes both external and internal faced by the industry."
In recent months, SpiceJet seemed to have turned around operationally with a key metric, revenue per available seat km, rising and another, cost per available seat km, falling. In the three months to 30 September, the first increased 12% (over the same period last year) and the second fell 7%.
The promoter’s inability to pump in more funds into the airline or find an investor, though, seems to have eventually taken its toll, manifesting itself in a rapid and sudden fleet reduction last month that forced the airline to cancel flights and prompted the civil aviation ministry to sit up and take notice. It prohibited the airline, which was managing both inventory and cash flow by selling tickets up to a year in advance, from selling them more than 30 days in advance.
The airline has been losing money and it has cancelled over 1,800 flights in a month. It has shrunk its fleet from 58 aircraft to nearly 37. It has a 17% domestic market share.
“Promoter’s inability to fund closes the case. We expect things to deteriorate further and see a massive rush for refund claims," Kaul said.
Kaul added that he does not see any further unsecured credit from oil companies and Airports Authority of India to the airline after Monday.
A financial proposal the carrier submitted to the government in a meeting earlier on Monday didn’t give any new information regarding new investors and funds, an official at the Directorate General of Civil Aviation told reporters in New Delhi, asking not to be identified citing departmental rules.
This was later denied by a SpiceJet executive.
“No financial plan submitted to DGCA (Director General of Civil Aviation) today . Objective of meeting was to discuss financial impact of 30 day booking limit on the airline," Sanjiv Kapoor, chief operating officer, SpiceJet, wrote on the microblogging site Twitter.
The meeting with the government is “very crucial" for the company, according to a letter the airline sent to pilots earlier, a copy of which was obtained from a person with knowledge of the matter. “If all goes well," then the airline expects to continue operations smoothly and as planned, Sandeep Varma, head of flight operations, wrote. The airline’s senior management will brief employees “if all does not go well", according to the letter.
Varma disconnected two calls to his mobile phone and didn’t respond to a text message.
SpiceJet shares fell 7.8% to ₹ 13.55 in trading on Monday. The official’s comment came after the close of trading. The shares have declined 23% this year. Maran and his company KAL Airways Pvt. Ltd, together owned more than 53% of the airline, according to data compiled by Bloomberg.
Maran has invested about ₹ 1,300 crore in the airline so far, including the ₹ 740 crore that he spent buying a stake from Wilbur Ross in 2010 at ₹ 47.25 per share, according to SpiceJet.
State-owned Air India Ltd, which has got funding from the government to offset its losses, and other airlines have struggled to make money in the Indian market, where the number of domestic travellers is projected to triple in the decade to 159 million people by 2021.
That growth has prompted carriers to order billions of dollars in new aircraft in the past decade from Airbus Group NV and Boeing Co. In March, Chicago-based Boeing said it won an order for 42 of its 737 Max planes from SpiceJet, a deal valued at about $4.4 billion in list prices.
Rising incomes and a surge in the number of passengers have encouraged Singapore Airlines Ltd and AirAsia Bhd to start local operations. The challenge is how to make money while fares continue to drop even as costs increase.
SpiceJet reported five straight quarterly losses and tried for more than two years to woo an external investor to one of the world’s costliest markets for fuel, which accounts for as much as 50% of the costs for some Indian carriers
SpiceJet reduced its fleet of Boeing planes, delayed wages, and faced regulatory scrutiny after a spate of cancellations, including more than 160 flights days last week. The carrier is India’s second-biggest budget airline, lagging behind IndiGo.
India’s aviation regulator had barred SpiceJet from accepting bookings for travel in more than a month’s time, cancelled 183 of its landing and parking slots and told the company to pay delayed salaries by 15 December. The airline responded by saying the restrictions on bookings were “counter productive" and it threatened to curb the company’s revenues.
Kingfisher, named after India’s best-selling beer, lost its flying permit and ceased operations in 2012. The company said in January it aimed to restart operations, though its licence will expire at the end of this year if flights don’t resume by then.
That plan suffered a blow earlier this month when the government rejected Mallya’s reappointment as chief of the grounded airline in a rare veto after a bank named the carrier and some of its directors as defaulters.
Siddharth Philip in Mumbai and Mint’s P.R. Sanjai contributed to this story.
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