SpiceJet prepared to offer increased airline business stakes

According to chairman and managing director Ajay Singh, low-cost airline SpiceJet is willing to sell further shares in order to lower its liabilities.

“We are flexible. We will talk to our partners and see what it is they prefer to do. But, irrespective, we need to deleverage our balance sheet to have the space to grow, and that’s what we are trying to do,” Singh said in response to a query at the CAPA India Aviation Summit.

The Gurugram-based airline had liabilities of almost 14,000 crore at the end of the December quarter, when it reported a four-fold increase in net profit to 106.8 crore thanks to strong demand and increased fares.

The carrier has discussed contract renegotiations, capital raising, and restructuring with lessors, investors, and lenders in India and overseas. Carlyle Aviation, the airline’s main lessor from which it has leased 13 aircraft, has agreed to convert $100 million in unpaid debt into a 7.5% ownership stake and $65.5 million in compulsorily convertible debentures in the cargo segment in exchange for the conversion of the debt.

“The cargo entity (SpiceXpress) will start operating as a separate entity from 1 April. We have a bunch of people to whom SpiceJet owed money to. Because, of course, during covid, airlines had these assets for which they had to pay leases and were not paid. So, all this liability built up. So, we used this cargo unit to help us pay those by getting some creditors to convert into equity in the unit,” Singh said.

The grounding of the Boeing Max fleet in March 2019 following two deadly incidents involving the aircraft type, in Singh’s opinion, was a worse catastrophe and put SpiceJet out of business in addition to the effects of COVID.

“This was a bigger disaster than covid for us, and we are still on the path to recovery as a consequence of that. When the first aircraft crashed, we were told that, look, it must have been a pilot error, and while the matter was still being investigated, the second crash had happened. At that point, we were told that it was a 15-day affair. It is a small fix, and we will be flying again from 1 April (2019). We never imagined that that could take more than two years,” Singh said.

“This was a bigger disaster than covid for us, and we are still on the path to recovery as a consequence of that. When the first aircraft crashed, we were told that, look, it must have been a pilot error, and while the matter was still being investigated, the second crash had happened. At that point, we were told that it was a 15-day affair. It is a small fix, and we will be flying again from 1 April (2019). We never imagined that that could take more than two years,” Singh said.

In January 2017, the airline made a definite order for 155 Boeing 737 Max aircraft, with the option to purchase an additional 55. Only 12 of its 65-plane fleet are Max models at the moment because the airline is having trouble getting the money it needs to take delivery of new aircraft, according to two people with knowledge of the situation.

The addition of 35 aircraft from Jet Airways, which ended operations in April 2019, helped the airline expand its fleet in 2019. Notwithstanding the frequent technical difficulties of these aircraft, Singh believes that they were essential in giving SpiceJet access to desirable slots at all of India’s main airports.

He did acknowledge that the airline should have been better funded before 2020, though. With 119 aircraft in its fleet as of January 2020, SpiceJet had a 16.6% share of the domestic market. With a fleet of 65 jets, this decreased to 7.3% in January 2023; however, only 35 of its aircraft are now in service.

“It is in the DNA of SpiceJet. We just refuse to die. During covid, we were the weaker airline. IndiGo had its reserves. Air India had the government of India, GoAir had the backing of Britannia and Wadias. We chose not to shut down and die,” Singh said, adding that the airline aggressively pushed its cargo business during the pandemic. As part of its plan to raise funds to finance growth plans, the company board had also sought shareholders’ approval in February 2023 to raise fresh capital of up to ₹2,500 crore or $301.9 million through an issue of securities to qualified institutional buyers.

“You will see a vastly different balance sheet over the next two quarters. We want to operationalize what is on the ground. We will get a significant number of dedicated cargo aircraft over the next few months,” he said.

“All of this was helped by tailwinds of demand. Demand is tremendous. I think there is still some way to go. You could still increase fares. There is no tapering in sight. Perhaps it is time when these 1.3 billion people are waking up and saying, let’s travel,” he added.