SpiceJet allowed to take bookings till 31 March5 min read . Updated: 17 Dec 2014, 05:06 PM IST
Government allows bookings until end of March and extends credit line for jet fuel by two weeks
Mumbai: SpiceJet Ltd received a temporary reprieve with the civil aviation ministry asking banks to give it short-term working capital loans aggregating ₹ 600 crore, allowing it to continue to book tickets a little over three months in advance (till the end of March) and asking state-owned oil companies to extend a credit line for jet fuel for two more weeks.
The ministry, which announced these relief measures in a late evening statement on Tuesday, also said airport operators would wait for two more weeks for the company to pay them their dues and that it would request the ministry of finance to permit the airline to borrow overseas for working capital as a special case.
“Indian banks may be requested to give some working capital loan based on the assurances of the promoter. Banks or financial institutions to lend up to ₹ 600 crore backed by a personal guarantee of the chairman, SpiceJet. This should be paid immediately after securing the long-term investment which will take around eight weeks to consummate," the statement said.
Tuesday’s statement comes a day after the airline sought state support amid concerns that it could shut down.
Two senior government officials claimed the promoter, billionaire media entrepreneur Kalanithi Maran, has sought two weeks to arrange funds that the airline requires to clear dues to employees and vendors, and restructure its operations, the two officials added.
The ministry had, through aviation regulator Directorate General of Civil Aviation, asked SpiceJet, which was raising some of its working capital through advance ticket sales, not to sell tickets more than a month in advance.
That restriction came after the airline cancelled around 1,800 flights in December which, along with reports of unpaid salaries, spooked the regulator into moving fast to prevent a repeat of what happened with Kingfisher Airlines Ltd, the debt-laden airline that was grounded in 2012.
S.L. Narayanan, group chief financial officer at Maran’s Sun Group, didn’t respond to phone calls seeking comment. A SpiceJet spokesperson declined comment.
Shares of SpiceJet gained 2.58% to close at ₹ 13.90 per share on Tuesday on the BSE, while the benchmark Sensex lost 1.97% to close at 26,781.44 points. During intraday, SpiceJet gained 8.86% to ₹ 14.75. From 5 December, SpiceJet has lost 12.85% and Sensex 5.89%.
The ministry’s statement came after market hours.
Fuel retailers had stopped supply of jet fuel to Spicejet on Tuesday, triggering disruptions in flights. SpiceJet owes ₹ 14 crore to oil marketing companies.
One of the two government officials said the aviation ministry’s actions were driven by a desire to protect the airline’s employees, passengers, and the industry itself. This isn’t a bail-out, this person stressed.
SpiceJet has clarified that it has not sought any bailout but breathing time.
India’s oldest airline, the state-run Air India Ltd, is the recipient of a bailout, though. The government approved a ₹ 30,000 crore package to rescue the state-run airline in April 2012. This included an upfront equity infusion of ₹ 6,750 crore and assured equity support of ₹ 23,481 crore till 2020-21. Air India had a total debt of ₹ 40,000 crore as on 30 September 2014. The state-run airline is expected to post a loss of ₹ 3,900 crore for the year ended 31 March. It still has not reported its earnings. It posted a loss of ₹ 5,100 crore in 2012-13 and a loss of ₹ 7,100 crore in 2011-12.
Kingfisher Airlines did seek financial aid from the government, but didn’t receive it, although its extended lease of life was largely due to the generosity of state-run banks such as State Bank of India. The airline had accumulated losses of ₹ 16,023.46 crore as of 31 March 2013 and its net worth was a negative ₹ 12,919.82 crore. Launched in 2005, the airline never made a profit.
SpiceJet hasn’t run into any trouble with banks.
Its total liabilities exceeded its total assets by ₹ 1,459.7 crore on 30 September, the airline’s auditor SR Batliboi and Associates said. SpiceJet lost ₹ 1,003 crore in 2013-14. In 2013, it had also deferred tax payments, in keeping with rules that allowed late payment with interest. The airline paid over ₹ 400 crore from operating cash flows between August and November as taxes with interest.
The tax payments (made in what is traditionally a lean season for airlines), the return of leased aircraft and DGCA’s decision to ban advance booking adversely impacted SpiceJet.
With Maran unable to find an investor willing to take a stake in the airline, the cash-strapped SpiceJet decided to cut its fleet by a third to stay afloat. The resulting cancellations prompted DGCA’s action on 5 December.
A person close to the development said that DGCA’s decision dried up the airline’s revenues and cash inflows.
Kapil Kaul, chief executive officer (South Asia) at consultancy firm Capa Centre for Aviation, welcomed the government’s response.
He, however, added that much will depend on a funds infusion into the airline. “Without immediate and significant funding, I see this as a closed case. SpiceJet needs to come clean on the funding prospects including timelines," Kaul added, describing the airline’s explanation on this count as “not convincing."
In an interview on 7 December, SpiceJet’s Kapoor said funding and recapitalization have taken longer than expected. Till September, analysts were upbeat about a turnaround for SpiceJet.
On an operating level, SpiceJet had reduced operational losses for the September quarter 2014 by 60% year-on-year and had grown to second position in the domestic market in terms of passenger share in July 2014, up from fourth in January.
“Some historic liabilities had to be dealt with in the meantime from our operating cash flows. We had to take some tough decisions. Reducing the fleet was one of them," Kapoor said in the interview.
An airline consultant, who spoke on condition of anonymity, said legacy issues are haunting SpiceJet. This person echoed Kaul and said the airline needs to find an investor soon—and added that it has been unable to do so for almost two years now.