How can SpiceJet fly out of its existential crisis?

A considerable jump in air traffic and moderation in jet fuel prices have failed to turn around the fortunes of SpiceJet -- which continued to remain in the red. In January, domestic airlines carried 64 lakh passengers. And the numbers jumped to 6.7 crore in July.

During the same period, SpiceJet’s domestic market share came down from 10.65 to 8%, which meant the airline slipped from Number 2 to Number 5 in ranking in a matter of six months. The company delayed its Q4 FY22 results after witnessing a ransomware attack on May 25th. 

SpiceJet on Wednesday reported a Q4 loss of 458 crore rupees and a loss of 789 crore rupees in the April-June period, the first quarter of FY23, due to high fuel prices and a depreciating rupee. First-quarter total revenue more than doubled to 2,478 crore rupees. The overall loss incurred in FY22 was 1,725 crore rupees, a jump of 73% over FY21.

To make matters worse, its Chief Financial Officer Sanjeev Taneja, who took charge in November 2020, resigned with immediate effect on Wednesday. SpiceJet said a replacement has been found.. 

Markets took the cue. The Gurugram-based airline’s shares fell as much as 15% on Thursday. So far this year, the stock is down 33%.

The cash-strapped airline has been struggling to make timely payments to vendors and lessors, which has led to the aviation regulator DGCA deregistering six Boeing 737 aircraft in August. Its employees on Wednesday alleged a delay in the disbursal of salaries for the second straight month, with the airline saying the payments were being made in a “graded format”.

In July, DGCA ordered SpiceJet to slash its approved fleet to 50% this summer for eight weeks in the wake of several mid-air safety snags. The regulator said that it would subject the airline to “enhanced surveillance”. In a show-cause notice, DGCA has said the airline failed to build “safe, efficient and reliable” air services.

As of March 31st, SpiceJet had a negative net worth of 4,288 crore rupees and negative retained earnings -- or accumulated losses -- of 5,913 crore rupees.

Its current liabilities exceeded its current assets by 6,408 crore rupees. Its cash and cash equivalents at the end of FY22 stood at 9.6 crore rupees while bank balances were 50.7 crore rupees. Managing Director Ajay Singh said despite “the complex operating environment and highest ever input costs”, the airline had been able to sustain its operations and would soon engage investment banks to raise up to $200 million or about 1,590 crore rupees. 

[Rohit Tomar, Managing Partner, Caladrius Aero Consulting]

In short, Ajay Singh needs a white knight. Given SpiceJet’s current market capitalisation of 2,700 crore rupees, any fundraising can cause significant dilutions for existing shareholders, including Singh who holds a 59% stake. 

But this can be avoided by structuring the infusion such that he retains control after onboarding the financial investors. 

Unless he can convince new investors that he is the right man again to steer the turnaround, he may not come out unscathed.