SpiceJet plans to give ESOPs as reward for reviving airline

SpiceJet’s board has cleared the mandate and the next step is to be taken at the firm’s annual general meeting in the last week of December


SpiceJet chairman Ajay Singh.
SpiceJet chairman Ajay Singh.

Budget airline SpiceJet Ltd may soon offer stock options to employees to reward them for helping revive the airline from the brink of closure around two years back.

“We are working on ESOPs (employee stock ownership plan),” SpiceJet chairman Ajay Singh said in an interview, adding that the broad contours of the policy are being worked out.

SpiceJet has about 6,400 employees and a 13% domestic market share.

SpiceJet’s board has cleared the mandate. The next step is to be taken at the firm’s annual general meeting in the last week of December, said a person familiar with the matter who declined to be named.

ESOPs are likely to be for all employees and the key “loyalty” and “retention” will drive the grant, this person said. The process could be completed in the next 2-3 months.

“It will give employees a sense of ownership,” this person said, “And push them to do more, make more money.”

There will be lock-ins for employees and those that have been with the firm for a long time are likely to be rewarded well, this person said.

In February 2015, Singh, a co-founder of SpiceJet who had exited the airline in 2010, bought back majority equity from Chennai-based Kalanithi Maran and started work to stabilize the airline which was bleeding under debt, and aircraft lessors were threatening to take over planes.

With help from cheaper fuel price, which make up nearly half the cost of an Indian airline, SpiceJet has since swung back to profit and improved its market share.

To be sure, it would not be the first time that SpiceJet would have given stocks to employees. Many senior employees had been given stocks around 2012.

At that time, some people were given shares at Rs30. SpiceJet’s share was trading at about Rs65 on Monday.

Chairman Singh said that value has not been decided yet.

Rival Rahul Bhatia and Rakesh Gangwal-led IndiGo airline gave shares in its early days to its top management which made most of them millionaires when the airline listed on the stock exchanges last year.

The shares calculated at the listing price of Rs765 a share were worth about Rs460 crore for former chief executive Bruce Ashby, Rs350 crore for chief aircraft acquisition and financing officer Riyaz Peermohammed, Rs115 crore for former chief operating officer Steve Harfst, Rs30 crore for its chief commercial officer Sanjay Kumar, Rs6.5 crore for its former operations head Shakti Lumba.

The airline’s president Aditya Ghosh also got about Rs45 crore in shares and Rs110 crore in incentives.

Since then other senior management have also been given stock options.

The stock options plan may face some hurdles because of an ongoing share transfer dispute between SpiceJet and its former promoter Marans, said a second person in the know who, too, refused to be named.

Under the SpiceJet takeover agreement, Marans say they were to receive redeemable warrants in return for the Rs690 crore they spent on SpiceJet towards operating costs and debt payment.

The matter is now in the courts.

New York-based former Jet Airways CEO Steve Forte said stock options also prevent employees from creating labour unions in airlines.

“It gives an incentive to work towards the goal of increasing the value of the company,” Forte said. “In some cases, it stimulates employees to pressure less performing co-workers to come up to speed. It is a good thing.”

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