Mumbai: SpiceJet Ltd on Friday outlined a turnaround plan to the government, centred on a proposed $200 million investment by co-founder Ajay Singh and a unit of JPMorgan Chase and Co., as the cash-strapped airline fights for survival.
“It was a constructive meeting,” Kapoor told reporters.
The airline, India’s second largest low-fare airline, had delayed employees’ salaries for last month and briefly grounded its fleet this month for want of cash.
Key to the turnaround plan is the proposed purchase of a stake in SpiceJet by Singh and a fund managed by JPMorgan from Kalanithi Maran, the media baron who controls Chennai-based Sun TV Network Ltd and owns 58% of the money-losing airline. Singh and the fund plan to invest as much as $200 million in the airline, civil aviation ministry officials said on condition of anonymity.
A person close to development, requesting anonymity, said a deal could be struck by the end of January. Singh and JPMorgan are in the process of undertaking a due diligence inspection of the airline, he said.
SpiceJet didn’t name the potential investors. The firm said in a statement to the stock exchanges that it has been in discussions with various entities for recapitalization, either through debt or equity.
“However, it will be inappropriate to name any entity at this stage until definitive and binding arrangements are reached between the parties,” the company said.
Pending the infusion of funds, the airline has sought time to repay dues to various vendors, the person cited above said.
The no-frill carrier’s dues to foreign and Indian vendors, airport operators and oil companies had grown from Rs.990 crore to Rs.1,230 crore between 24 November and 10 December, according to data provided by the airline to the civil aviation ministry.
The airline’s dues to foreign vendors, including aircraft lessors and maintenance, repair and overhaul facilities, had risen from Rs.624 crore to Rs.742 crore in the same period.
Kapoor said the airline is making upfront payments to oil marketing companies for buying jet fuel and has a loan liability of Rs.300 crore with banks.
SpiceJet is focusing on restoring the normalcy of its operations.
“It has created a war room to monitor the on-time performance of the flights. At present, it would be flying only 20-25 Boeing 737 planes and 15 Q400 Bombardier planes as a part of fleet rationalization. After fresh funding, the airline will get more leased Boeing planes,” the person cited above said.
On 5 December, the civil aviation ministry asked SpiceJet—which was raising some of its working capital through advance ticket sales—to stop sales of tickets more than a month in advance.
That restriction came after the airline cancelled around 1,800 flights in December after it shrank its fleet, largely owing to financial reasons.
This, along with reports of unpaid salaries, prompted the aviation regulator Directorate General of Civil Aviation (DGCA) to act quickly to prevent a repeat of what happened with Kingfisher Airlines Ltd, the debt-laden airline that was grounded in 2012.
Still, the restriction on advance sales actually ended up precipitating a crisis by drying up the airline’s source of funds.
Last week, SpiceJet had to briefly ground its fleet for more than 10 hours after oil companies refused to fuel the aircraft until it pays its dues. The aviation ministry has since permitted SpiceJet to accept bookings till March-end and asked banks to give it short-term working capital loans.
SpiceJet made a loss of Rs.245.6 crore (excluding one-off expenses) for the three months ended 30 September, down from Rs.559.5 crore in the year-ago period. The airline’s auditors, S.R. Batliboi and Associates, have said that as of 30 September SpiceJet’s total liabilities exceeded its total assets by Rs.1,459.7 crore.
An aviation consultant said that a co-founder joining a private equity firm to invest in the airline bodes well for SpiceJet.
“It is a good time to enter the civil aviation market and SpiceJet is a good bet as it is still maintaining its operations despite troubles,” said Harsh Vardhan, chairman of New Delhi-based Starair Consulting.
Vardhan added that currency fluctuations, the willingness of the government to pass on the benefits of lower crude oil prices and the ability of promoters to invest fresh funds would be key to the future of India’s airlines.
Shares of SpiceJet gained 9.07% to close at Rs.19.25 on Friday on the BSE while the benchmark Sensex edged up 0.12% to close at 27,241.78 points.
Reuters contributed to this story.