2 min read.Updated: 30 Aug 2021, 01:32 AM ISTRhik Kundu
Auditors of SpiceJet have raised doubts about the airline’s ability to continue as a going concern
The Directorate General of Civil Aviation (DGCA)’s decision to allow the return of Boeing Co.’s 737 Max, will help SpiceJet Ltd, the sole operator of the aircraft in India, to cut operating costs and improve cash flows from the sale and leaseback (SLB) of new aircraft.
Under SLB, an airline buys an aircraft and sells it to a lessor at a profit to lease it back for its own use. It not only helps generate cash, but also removes the aircraft, and its associated debt, from the carrier’s balance sheet.
Loss-making SpiceJet, which has so far claimed more than ₹1,200 crore in compensation from Boeing following the grounding of the planes in March 2019, will not be able to make further claims from the aircraft manufacturer. The airline is, however, yet to receive a substantial part of the compensation owed to it by Boeing.
Auditors to SpiceJet said during its June quarterly results that the carrier would have reported steeper losses had it not recognized the other income, which was the compensation from Boeing.
The airline had 13 737 Max at the time of the ban. SpiceJet had in 2017 ordered 205 Boeing planes, including a hundred units of 737 Max 8 aircraft.
The 737 Max was grounded following two fatal crashes involving the aircraft.
The plane returned to service in the US and Europe over the past year following extensive fixes by Boeing. Globally, the plane has logged about 311,000 flying hours since December 2020.
The return to service of the 737 Max is good news for Boeing and its India presence, said Satyendra Pandey, managing partner at aviation advisory firm AT-TV. “For India’s airlines, SpiceJet is the only operating airline with the Boeing 737 Max in fleet. Indications are that the newest airline in India will also announce a 737 Max fleet," Pandey said.
“The airplane will allow SpiceJet to deliver lower costs in an environment where every rupee counts, and margins continue to be wafer thin. If SpiceJet is able to get sale-and-leaseback income flowing the newer Max deliveries, it will help with their cash flows," Pandey said, adding the compensation for the aircraft’s grounding continues to be a “complex and controversial issue and will take time to unravel".
Another senior industry executive, who had stints in few airlines, said requesting anonymity that SpiceJet may not receive Boeing’s full compensation as aircraft makers do not prefer a direct or full cash payment and instead opt for other structures, which include discounts or roll over of payments.
Meanwhile, Walker Chandiok and Co. LLP, the auditors of SpiceJet, once again raised doubts about the airline’s ability to continue as a going concern as mounting losses have led to complete erosion of its net worth, with the current liabilities exceeding current assets by ₹6,044.91 crore as on 30 June.
“SpiceJet seems to be prepared, and we may see the return of grounded Max over the next few weeks," said Kapil Kaul, chief executive officer, Indian subcontinent and the Middle East, CAPA, an aviation consultancy.