Supreme Court dismisses SpiceJet’s appeal, upholds grounding of leased engines

  • The airline must now ground the engines, having exhausted its legal remedies to prevent this.

Krishna Yadav
Published20 Sep 2024, 02:31 PM IST
The Supreme Court denied a request from SpiceJet's counsel for more time to comply with the grounding order. Photo: Reuters
The Supreme Court denied a request from SpiceJet’s counsel for more time to comply with the grounding order. Photo: Reuters

The Supreme Court on Friday rejected SpiceJet's plea against a Delhi High Court order that required the cash-strapped airline to ground three engines leased from Team France 01 SAS and Sunbird France 02 SAS over the unpaid dues.

A three-judge bench led by Chief Justice DY Chandrachud upheld the high court's orders, finding that SpiceJet violated a consent order with the lessors. The court said the high court judgement was correct and said it was reluctant to interfere.

The Supreme Court denied a request from SpiceJet's senior counsel Amit Sibal for more time to comply with the grounding order. Sibal said the airline had already paid more than $8 million to the lessors and that discussions were on in Singapore for a settlement. He requested relief until an agreement was reached, but the court refused to intervene.

Sibal also told the court that while two of the three engines had already been grounded, SpiceJet needed specialised stands to ground the engines properly before returning them to the lessors, and requested more time. In response, the Supreme Court advised SpiceJet to approach the Delhi High Court to explain its circumstances.

Also read: Mint Primer | How long before IndiGo can fly its grounded fleet?

Senior lawyer Abhishek Manu Singhvi, representing the lessors, argued that SpiceJet repeatedly violated the consent order, despite making 18 appearances in court and facing two high court orders while still using the engines. Singhvi said that according to the consent order, SpiceJet was liable to return the engines within 15 days if it failed to make payments.

What happens now?

The airline must now ground the engines, having exhausted its legal remedies to prevent this. The latest decision increases the burden on the cash-strapped airline. SpiceJet said in court it operates a fleet of 21 aircraft and that grounding the engines would lead to the grounding of two planes, disrupting its operations.

However, the airline said in a statement, "SpiceJet is currently in discussions with the aircraft lessor to reach an amicable settlement. It is important to note that two of the three engines in question are already grounded, and our operations remain completely normal and unaffected. We remain committed to ensuring seamless operations."

Following the order, shares of SpiceJet were down 3.50% to 65.99 at 2.15 pm on Friday.

Case history

The airline had moved the Supreme Court to challenge the order of a division bench of the Delhi High Court, which on 11 September dismissed its plea to overturn a single-bench order mandating the grounding of the three engines.

The division bench, led by Justice Rajiv Shakdher, rejected SpiceJet’s arguments, saying it did not wish to interfere with the single-bench order and urged both parties to seek a settlement instead. 

The original order, issued by the single bench on 14 August, required SpiceJet to ground the planes by 16 August and return the engines for inspection within 15 days.

Also read | SpiceJet’s path to recovery: A tough, long climb to reclaim market share

The high court had previously rebuked SpiceJet, with Justice Shakdher saying, "You are using someone else’s property, and you can’t use it without paying the rent." He also questioned the rationale behind SpiceJet’s assurances, suggesting that if the airline had the finances to meet its obligations, it would not be in court.

During the hearing, SpiceJet claimed it was one of the few remaining airlines in India and was struggling to stay operational amid a challenging environment. The airline detailed a bona fide offer that included securities and a pledge of shares from directors to cover outstanding dues. It proposed securing payments with encumbered aircraft or shares, committing to continue its weekly payments of $160,000 and monthly installments of $1.2 million.

Plan to raise 3,000 crore

SpiceJet plans to raise 3,000 crore through a qualified institutional placement (QIP) by 30 September has and pledged to use 4.9 crore from this to settle dues by the end of the month. However, the lessors rejected this offer, expressing frustration over SpiceJet’s failure to make payments since December 2023 and questioning the airline’s financial stability.

Court filings revealed that Team France 01 SAS and Sunbird France 02 SAS initiated legal action against SpiceJet in December 2023, citing unpaid dues exceeding $20 million. While SpiceJet has managed to pay $8.36 million toward these claims, it still owes $9.41 million as of August 12.

The airline's finances remain dire. It reported a consolidated net profit of 158.2 crore for the June quarter, a 20% decline from 197.6 crore in the same quarter last year. Total income fell by 8.3% to 2,077.8 crore, while expenses decreased by more than 7% to 1,919.6 crore.

Also read: International airlines line up for a slice of India's domestic market

SpiceJet’s total liabilities stood at 11,252 crore at the end of June, down from 11,690.7 crore at the end of March and 12,420.2 crore at the end of December 2023. The airline is currently under enhanced surveillance by the Directorate General of Civil Aviation (DGCA) due to flight cancellations and financial stress.

In response to these challenges, chairman and managing director Ajay Singh plans to reduce his stake in the airline by more than 10% to raise around 3,000 crore. Despite this dilution, he is expected to remain the largest shareholder, with his stake projected to drop to 30-35% after the fundraising.

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First Published:20 Sep 2024, 02:31 PM IST
Business NewsCompaniesNewsSupreme Court dismisses SpiceJet’s appeal, upholds grounding of leased engines

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