No-frills carrier SpiceJet Ltd will lease more Boeing Co.’s 737 NG (Next Generation) planes and continue to expand capacity even if the Chicago-headquartered company’s troubled 737 MAX fleet remains grounded till the year-end, according to a person with direct knowledge of the matter.
SpiceJet, which has 13 737 MAX planes, faces a delay in the delivery of the remaining 142 of those planes scheduled over the next few years. The current fleet of 737 MAX jets has been grounded since mid-March.
Boeing had in May told SpiceJet, one of the biggest buyers globally of the 737 MAX, that the grounded jets would be back in the air in July. However, the plane is now expected to remain grounded much longer, according to reports.
The Wall Street Journal reported on 27 June that the troubled 737 MAX fleet is expected to stay grounded until late this year as a result of the latest flight-control problem flagged by US air-safety regulators.
SpiceJet has placed an order for 155 MAX 8 aircraft with Boeing, with purchase rights for 50 additional MAX 8 planes and other wide-body aircraft.
The airline bet big by investing heavily on the fuel-efficient 737 MAX planes, which also gave a longer range than the traditional 737 planes of Boeing.
Queries emailed to a spokesperson for SpiceJet had not elicited any response till the time of going to press.
“During the Federal Aviation Administration’s (FAA’s) review of the 737 MAX software update and recent simulator sessions, the FAA identified an additional requirement that it has asked the company to address through the software changes that the company has been developing for the past eight months. Boeing agrees with the FAA’s decision and request and is working on the required software," Boeing said on 26 June.
SpiceJet’s acquisition of the 737 MAX planes has been through sale and lease back model, which is common in the airline business. Airlines sell their planes to a lender, a process that helps them generate revenue, and then lease the same planes for a fee.
The delay in 737 MAX delivery is, however, not expected to slow down SpiceJet’s growth as there’s extra capacity in the market due to the grounding of Jet Airways (India) Ltd, said the person mentioned above.
“SpiceJet is in an excellent position to tap growth as several Boeing 737 NG planes, which were earlier with Jet Airways, are available for lease at competitive rentals," the person said.
“Not only is the airline getting discounts on the lease rentals, but it will also get a hefty compensation from Boeing for the grounding of the 737 MAX planes, which has led to the delivery delays," the person said.
SpiceJet has inducted about 30 Boeing 737 NG planes that were withdrawn from grounded Jet Airways’ fleet by lessors. The carrier has added the planes on short-term leases, with a maximum lease tenure of 24 months.
SpiceJet, which had a 14.8% of the domestic market share in May, has more than 100 aircraft in its fleet, including Boeing 737 planes and Bombardier Q400 aircraft.
“SpiceJet will look to add some additional planes on wet lease and improve utilization of its existing 737 NG/Q400 fleet," ICICI Securities said in a report on the grounding of Boeing 737 MAX aircraft.
Kiran Koteshwar, chief financial officer of SpiceJet had told Mint in May that the capacity vacated by Jet Airways had to be filled by one airline or another.
“Mathematically, we have advanced our expansion programme, which was supposed to happen in 2021 to 2019, by inducting the new capacity," he had said.