SpiceJet's Do Or Die Moment

Since the start of the lockdown in March 2020, the aviation industry in India has been speculating on if and when SpiceJet, the airline Ajay Singh bought for ₹2 from the previous owner Kalanithi Maran, will succumb to the troubles that have engulfed it in the last three years.

As soon the pandemic hit, many argued that it was touch and go for SpiceJet, which has no corporate backing like Vistara or Air India or a strong cash position and balance sheet like IndiGo. The recent bankruptcy filing by rival GoFirst has thrown the spotlight yet again on it, with many convinced it may be next in line. 

But the airline's chairman and managing director Singh has so far proved his skeptics wrong and remained stubbornly at it despite "all hell breaking loose around him" as a former MOCA (ministry of civil aviation) secretary puts it.

The airline has suffered, withered down in size and stature since its heydays in 2017-18 during which its total fleet crossed 100 aircraft. Its on-time performance has taken a beating as has safety record (many technical and safety glitches have plagued it). Its market share of 6.9% for the first quarter of the year has slipped in April and May to 5.8% and 5.4% respectively, not far above Akasa, the youngest player in the game. Yet the airline's planes remain relatively full and load factors high. For a certain profile of Indian fliers, SpiceJet remains their go-to airline, if not by choice, by habit.

What has remained a mystery - many refer to it as an enigma - is how despite having no cash for the last three years, Singh has managed to keep the airline afloat. But Singh manages to stay in the eye of the storm by remaining one of the most vocal of the airline chiefs, constantly lobbying and representing the industry's views to the authorities and at any fora.

For at least two years now, Singh has been claiming he will clean up his affairs and has been in firefighting mode but things have moved at a snail-like pace through 2022. The tempo of this last ditch attempt to save the carrier has however picked up since the beginning of 2023.

A Do Or Die Moment 

In recent months, many steps have been taken to douse fires that engulf SpiceJet and to settle the battles that threaten to derail it. But perhaps the biggest challenge before Singh is to get more planes with the SpiceJet logo back up in the air.

Most recently, in June, displaying his famed risk-taking appetite, Singh announced that the carrier would be leasing ten Boeings for the coming winter season to meet the rising demand, which came as a surprise to many industry players since many lessors have been battling the airline for pending dues. A company insider adds that the additional capacity is being brought in as much to ensure the airline retains its slots and its schedule as to make good of the opportunity presented by the increased traffic demand.

Further, sources point out that since the new capacity to be brought in is wet lease, the payments are made up front so the lessors will not be worried about payment defaults. "Wet leasing is an expensive option and makes very little sense for an airline that has its own aircraft and that too B737Max on order. It is more an act of desperation than anything else: a do or die moment," says a former SpiceJet top management executive, on condition of anonymity.

Since August 2022, a total of 11 aircraft have been returned on the request of lessors under IDERA (Irrevocable Deregistration and Export Request Authorisation), according to DGCA sources. A few planes have also been returned of the airline's own volition as they wanted to phase out older B737-800s. In addition, the ₹550 crore received as part of emergency credit line guarantee scheme (ECLGS) funding have been put to good use: partly to pay dues to lessors and around ₹330 crore is being spent on trying to bring at least 10 of the airline's 25-odd grounded aircraft back into operation. Of these 25, one grounded Boeing and one Q400 have been brought back into operation in the last few weeks. In May 2023, after three years of cuts and delayed payments, a pay hike was announced for commanders and first officers, quelling some of the simmering discontent.

As per DGCA and government sources, Spicejet aircraft in operation are now down to between 40-42 including 12 Max out of a fleet of around 78-80 aircraft. Almost 25 of its aircraft - Q400s and B737s - have been on ground for shortage of spares and other maintenance issues for several months now. Although the airline has many Max on order, it has so far managed to bring in only 12 of the Max aircraft as it does not have the funds required to induct more.

The airline also has appointed a mediator - the Dublin based advisory and leasing and asset management firm Skyworks Leasing - to settle differences between the airline and some of its lessors, one of whom filed an insolvency resolution proceedings against the carrier recently. Prior to this, a 7% stake taken by the Carlyle group in SpiceJet helped the airline reduce some of its dues by converting into an equity stake.

There remains unconfirmed talk of Singh bringing in personal funds as the promoter's contribution to raise fresh equity through a rights issue and to try and secure further funding through ECLGS. Supporters of Singh - a dwindling and smaller-by-the-day cohort - say that the airline is today in a far better position than in the past three years and that "if Singh has managed to run it for three years with no cash, there is no reason why he cannot do well with some cash!" The lower fuel costs and changed economics in the present macro environment will help it earn operational profits, sources add.

Those in this camp argue that with the Indian air traffic poised for the kind of growth it is, there is no reason why one of the European or Gulf carriers would not pick up a stake in a resilient and recognised brand like SpiceJet, once Singh steadies this ship, which they argue, he is trying his utmost to do. "I would argue SpiceJet has a far brighter three years ahead if the macro environment remains as it is today than the three years gone by," says a source who believes that an 18-year old brand like SpiceJet is not going anywhere in a hurry even if Singh has to take a backseat. A former MOCA secretary backs this assertion arguing that the airline has survived many ownership changes and good and bad days and seems "crisis proof" at some level.

Long Term Viability Remains Uncertain

Regardless of what steps have been taken of late, there are many skeptics in the industry who argue that it is too little too late for SpiceJet and that making up the ground it has lost in the present environment might not be possible even for someone with Singh's never say die spirit.

The airline continues to have unpaid dues on all fronts - be it to tax authorities, lessors, vendors or Airport Authority of India (AAI) and remains hemmed in by the numerous small and big legal battles it faces. Many of its 12,000-odd staff are disgruntled and unhappy with the way things have been unfolding but lack of opportunities in the market force a majority to stay. Long time Spicejet staffers including top management have failed to fit into the other airline's culture and environment as and when they have jumped ship.

One of the bigger and more vexing problems that continues to loom is the protracted court battle which began back in 2015-16 with the airline's previous owner Kalanithin Maran, in which the latter is now demanding a little over ₹400 crore in interest alone as on date. In February 2023, the Supreme court asked SpiceJet to pay ₹75 crore towards interest to the Marans within three months, on which the airline has since defaulted. Separately, the Marans have also filed for damages in Delhi High court and claim that Singh owes them at least ₹2,400 crore in damages - based on the calculations by an external firm that has expertise on the matter - since if the airline's warrants/shares had been issued as promised to them, they would have sold them when the share value was at its peak and recovered the money they invested in the business.

Overall, sources argue, the matter has turned very personal for Kalanithi Maran who feels Singh has shortchanged him and is more keen on teaching him a lesson than recovering his money. "This dispute could well be the undoing for Singh since the money involved is not a big deal for the owners of the Sun group. It is more a matter of principle for Mr Maran," says a former SpiceJet employee.

Sources following the dispute closely argue - only partly in jest - that perhaps the time has come for history to repeat itself with Maran now taking a majority stake in the airline for ₹2 and asking Singh to continue to run it as CEO! A detailed email seeking SpiceJet's responses on this and other matters remained unanswered till this article went to press.

Moreover, those familiar with Singh's way of functioning argue that he holds the reins of this ship too tightly and despite exhortations has not professionalised the airline's board and its composition, as required. "This mom and pop store approach worked in the mid 2000s but India's aviation sector is changing and those who don't change with the times will not survive," says a former MOCA secretary.

Either way, many in the sector remain concerned about the airline's long term viability or relevance in the changed aviation landscape. With IndiGo commanding the largest share of the Indian skies and the Air India conglomeration of airlines poised to corner a substantial portion, few expect the smaller players to survive or thrive unless they are nothing more than minor irritants in the wider expanse and horizons of the biggies. Room for the rest of the pack is shrinking by the minute.