Home / Companies / Airports revoke credit facility, ask SpiceJet to pay before flight

New Delhi: The state-owned Airports Authority of India (AAI) has said in an email that it is revoking its credit line to SpiceJet Ltd and that the airline will have to pay for its services every time it uses them (which is every time a plane takes off or lands).

The move comes even as SpiceJet effectively admitted to a short-term cash crunch and said over the weekend that November salaries would be delayed by 1-3 days.

“It has been decided by the competent authority to put operations of SpiceJet on cash and carry basis with effect from 4th December 2014 (midnight) i.e. 5th December 2014 till further orders as per AAI approved credit policy," R. Bhandari, executive director (finance) at AAI, wrote in an email to all of the country’s airport directors on 1 December.

Mint has reviewed a copy of the letter.

SpiceJet did not deny the AAI move but said “we are on good terms with AAI". A SpiceJet spokesperson claimed a “majority" of employees had been paid their salaries by Wednesday.

The airline, now controlled by Kalanithi Maran’s Sun Group, has been looking for investors and said on 24 November in a statement to BSE that some investors were interested in investing in the airline.

The financial problems at the airline, which, analysts say, could be behind its recent move to prune flights and reduce its fleet size—SpiceJet has cancelled nearly 50 flights a day since last month, according to the airline—seem to have an eclipsed an operating turnaround.

According to chief operating officer Sanjiv Kapoor, the airline made 45% reduction in losses, with 12% increase in revenue per available seat kilometre, 7% decrease in cost per available seat kilometre, 15% growth in revenues outstripping capacity growth of 7%, and 2% expenses reduction in the September quarter.

The airline made a loss of 245.6 crore (excluding one-off expenses) for the three months ended 30 September, down from 559.5 crore in the corresponding period a year ago.

Despite this, its book is weighed down by debt.

The airline’s auditors S.R. Batliboi and Associates have said “as of September 30, 2014, the company’s total liabilities exceed its total assets by 1,459.7 crore. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern", news agency PTI reported on 17 November.

Amid this rash of bad news, the airline received a fillip on Monday when billionaire investor Rakesh Jhunjhunwala picked a 1.4% stake in the airline from the open market for around 13 crore.

To be sure, being moved to the so-called cash and carry basis does not mean an airline is collapsing. Last year, Jet Airways (India) Ltd found itself in a similar situation when AAI threatened to do this. SpiceJet, too, has been here before.

An analyst said the airline should be supported in its hour of crisis by Directorate General of Civil Aviation (DGCA) but that it needs to work out a realistic schedule.

“Spicejet needs to work on a realistic schedule for next few months which is operationally feasible for it to deliver. Continuous disruptions will further hurt the brand and reputation. We expect DGCA to be supportive in this crucial hour but without compromising safety-related oversight as 4,000-5,000 people will get seriously impacted," said Kapil Kaul, South Asia CEO of consulting firm Capa Centre for Aviation.

Kaul added the airline could still find an investor.

“Post the recent ATF (aviation turbine fuel) (price) reduction and with further cuts likely and Brent oil expected to stay around $75 a barrel for the near term, expect potential investors to get more confidence as turnaround post solid recapitalization is possible and feasible," Kaul said.

Brent hit a five-year low below $68 a barrel on Monday after averaging around $110 a barrel in 2011 to 2013. It was trading at $70.95 a barrel at 2.32pm London time on Wednesday.

A former Air India executive who has, over the past couple of years, emerged as a significant critic of the way Indian airlines, including his own former one, operates, said the regulator should look out for the interest of passengers.

“One hopes the parallel ends here and SpiceJet does not go the Kingfisher way," said Jitender Bhargava, former executive director of Air India, referring to the airline that was grounded in October 2012 amid employee unrest over unpaid salaries.

“DGCA should, before it is too late, engage the airline on its future through a thorough and impartial financial audit as many passengers have bought tickets in sales for travel in 2015."

SpiceJet’s stock slumped 5.98% on Wednesday to close at 19.65 on BSE on a day the benchmark Sensex ended flat at 28,442.71 points.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
Get alerts on WhatsApp
My ReadsRedeem a Gift CardLogout