SpiceJet settles issues with lessors; to get 2 more Boeing 737 Max planes

Amid intense scrutiny over repeated technical snags, budget airline SpiceJet says it has entered into a settlement agreement with aircraft lessor Goshawk Aviation Ltd. and its affiliated leasing entities, which will allow the return of two more Boeing 737 Max aircraft into the SpiceJet fleet.

The entry of two more fuel-efficient Boeing 737 MAX aircraft into the SpiceJet fleet will provide it with a much-need strength as the airline -- like other domestic players -- struggles to keep up with profits amid high air turbine fuel (ATF) prices, weak domestic currency, and rising operational costs.

The airline operates a fleet of 99 aircraft, which includes Boeing 737 Max, Q‐400s and freighters.

The affiliated entities are Wilmington Trust SP Services (Dublin) Ltd., Sabarmati Aviation Leasing Ltd., and Falgu Aviation Leasing Ltd. Along with the return of two Boeing 737 MAX aircraft, the deal will also release one Boeing 737-800 NG aircraft.

The SpiceJet Limited share is up 2.07% today at ₹46.85 apiece on the National Stock Exchange. It touched an intra-day high of ₹47.75. The stock has outperformed the sector by 0.43% today, shows the data by research firm Markets Mojo.

The company says the parties have agreed to settle disputes related to the lease agreements for three aircraft. The agreement, the terms of which are confidential, ends all litigation proceedings between the parties. All proceedings, including before a U.K. court and execution proceedings before the Delhi high court, will be withdrawn accordingly.

Goshawk Aviation is one of the main lessors of MAX aircraft of SpiceJet. The company says the settlement with Goshawk follows SpiceJet’s successful settlements with De Havilland Aircraft of Canada Ltd, Credit Suisse, Boeing, CDB Aviation, BOC Aviation and Avolon.

Earlier this month, SpiceJet said it has cleared all outstanding principal dues of the airport operator Airport Authority of India (AAI), and the airline no longer remains on "cash and carry" at AAI-run airports in India. After clearing principal dues, the operator will release SpiceJet’s ₹50 crore bank guarantee, boosting its existing liquidity.

The dues to vendors was a concern for SpiceJet for quite some time now. In its financial assessment carried out in September 2021, the DGCA had said SpiceJet is operating on "cash & carry" and suppliers were not being paid regularly, which lead to the shortage of spares and frequent invoking of MELs (minimum equipment lists) releases. MEL allows an aircraft to fly even if something is broken but only under specific conditions. The 'cash and carry' arrangement is imposed if an airline is unable to clear airport dues. Under this, the credit facility is withdrawn by the AAI, and the carrier has to pay upfront to use airports.

Additionally, the Gurugram-based carrier also plans to raise fares by 10-15% in the wake of the rising cost of operations due to high aviation fuel prices and a weak rupee. The airline says it has absorbed the rising cost of fuel in the past few months, despite a 120% rise in its price since June 2021.

Like most of its peers, the Ajay Singh-led airline has reported many incidents of technical snags on flights off-late. This prompted the DGCA (directorate general of civil aviation) to conduct spot checks and even issue strict guidelines against the airlines. On July 28, 2022, the DGCA ordered the budget carrier to restrict its flights to 50% of the number of departures approved by the aviation regulator for eight weeks over repeated technical glitches. SpiceJet, however, says the DGCA order will not have any impact on its flight operations. It said due to the current lean travel season, SpiceJet -- like other airlines -- had "already rescheduled its flight operations".

The domestic aviation industry continues to struggle to come out of the losses incurred due to the Covid pandemic. The increasing instances of technical snags have added fuel to the fire. A total of 478 technical snags were reported in the last year from July 1, 2021, to June 30, 2022, with Air India topping the chart with 184 such incidents, says the civil aviation ministry data shows. IndiGo and SpiceJet reported 98 and 77 incidents of technical snags in the past year, respectively.