Rising dues to foreign aircraft lessors choking SpiceJet's finances

At the end of FY21, SpiceJet had Rs 8,446 crore in lease liabilities primarily to offshore lessors

In 2015, when SpiceJet promoter Ajay Singh paid Kalanithi Maran Rs 2 for buying a majority stake, few would have guessed that there would be a sense of déjà vu some years down the line.

In 2013, when Maran was still in control, the auditors of SpiceJet had warned that accumulated losses had completely eroded its net worth. In 2020-21, when Ajay Singh was in control, the auditors observed that the airline’s accumulated losses of Rs 4,190 crore had led “to complete erosion of its net worth that may cast significant doubt about the company’s ability to continue as a going concern.” 

While Maran ended up selling the airline for a pittance to Singh, the latter is now rumoured to be looking out for a conglomerate to pick up stake in SpiceJet. Singh holds 59 per cent of shares in the airline.

A look at SpiceJet’s financials shows that while rising fuel costs and pandemic-related disruptions have played their part, the airline has also piled on dues to foreign lessors while undertaking a massive fleet expansion over the years. In FY21, the last year for which the airline has filed its full accounts, it had Rs 8,446 crore in lease liabilities primarily to offshore lessors of its planes and engines. Of this, Rs 5,362 crore was long-term dues, payable after a year. 

In FY15, when Singh took over the airline from Maran, it owed lessors Rs 1,200 crore in long-term liabilities. While SpiceJet operated just 32 aircraft at that time, it operated 98 aircraft in FY21. To put it another way, SpiceJet’s fleet strength grew three times while the money it owed to lessors for them grew almost five times during this period. Unlike many airlines, SpiceJet doesn’t avail of financing facilities from its lessors, according to the airline’s spokesperson.

Much of these dues to from lessors for the planes are paid in foreign currency, primarily US dollars. With the rupee having depreciated this year against the dollar, these liabilities are bound to hit the airline even harder. Little wonder then that in June Singh demanded a 15 per cent hike in airfares citing the weakening rupee and ballooning aviation turbine fuel costs. Singh had said, “The weakening of the Indian rupee against the US dollar further significantly impacts airlines as our substantial cost is either dollar-denominated or pegged to the dollar.”

This comes at a time when the airline’s accumulated losses hit Rs 5,453 crore as of December 2021. SpiceJet is yet to file its financial results for the last quarter of FY22. It made profits only for the first three years after Singh’s takeover in 2015 and has been in the red ever since. The airline’s finances have been hit despite it gaining a significant foothold in regional aviation under the Narendra Modi government’s regional connectivity scheme (RCS).

A couple of lessors have taken back planes citing non-payment of dues in the past. But the airline remains unperturbed. Its spokesperson said that it plans to induct seven more Boeing 737 MAX aircraft as part of its 205 plane deal with Boeing this year. Another 13 would be added next year. The spokesperson added, “None of the planes that have been returned are MAX. As part of our modernisation plan, we are returning older aircraft in a phased manner including these three aircraft. These returns have been planned and will not have any impact on our operations. SpiceJet has already returned 12 old Boeing aircraft to lessors in the last calendar year. We have 13 MAX aircraft in our fleet and the new inductions would begin from October 2022.”