SpiceJet needs air ambulance as losses mount to Rs 2,189 crore

Written by fe Bureau | Updated: Aug 14 2014, 15:20pm hrs
SpiceJetDGCA had reportedly discovered that SpiceJet wasn?t able to provide equipment for some flights and is checking to see if it has enough spares.
With an estimated daily loss of Rs 2.75 crore, low-cost carrier SpiceJet is in big trouble. The airlines cumulative losses have piled up to Rs 2,189 crore and the Kalanithi Maran-owned carrier desperately needs a big dose of capital.

The airline is also in a spot of bother with the Directorate General of Civil Aviation (DGCA) having initiated an engineering audit on it the DGCA had reportedly discovered that the carrier wasnt able to provide equipment for some flights and is checking to see if it has enough spares.

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The airline has lost 50 basis points (bps) in market share over the past year but, in absolute terms, its share has increased from 17.8% in March to 19% in June, making it once again the number two airline in the home market. Thats despite a reduction in fleet and capacity deployed during the April-June period. With a load factor of 81.4% in June, SpiceJet also recorded the highest increase in loads for the period March-June 2014. However, much should not be read into the improved load factor since it is largely a result of heavy disounts even in the busy season, on top of a reduced fleet. By offering heavy discounts on tickets, the carrier is able to get cash, something it needs badly.

Indeed, the airline is expected to report a loss for the three months to June, on the back of a Rs 1,003-crore loss last year, a five-fold jump over that in the previous fiscal. The companys net worth is now a negative Rs 1,020 crore while net debt stands at Rs 1,511.23 crore.

To be fair, Maran has invested around Rs 545.75 crore since 2010, when he bought 37.7% in the company. Today, his stake stands at 52.13% since he has bought 5% every year, the maximum permitted under Sebi regulations. However, that hasnt been enough and while there has been talk of a foreign investor being brought in, no deal has materialised yet.

Kapil Kaul of consulting firm CAPA feels the carrier requires a minimum $250 million to take care of some of the losses, and more will be needed to expand operations. With AirAsia and Tata-SIA coming in and six more airlines expected to start flying soon its critical, he says, that SpiceJet raises money in the next 1-3 months. If not, the airline's operations could get affected or it may have to go for a major downsizing, Kaul told FE.

The airline, which will announce its April-June quarter earnings on August 14, is expected to post losses of around R151.65 crore, according to Bloomberg estimates. The losses estimated by CAPA during the period will be around Rs 90-100 crore. Sales are expected to be flat at Rs 1,695 crore against last year's Q1's Rs 1,688 crore.

Last year, during the same period, the airline had posted a net profit of Rs 50.56 crore. Normally, for airline companies, the third quarter (October-December) is the best season in terms of earnings, followed by Q1 and Q4. The second quarter (July-September) is generally the worst. During FY14, barring Q1, SpiceJet posted losses in the other three quarters.

The airline has a 52-plane fleet comprising B 737s and Bombardier Q-400s. DGCA has also sought details on dues to various vendors. SpiceJet owes AAI about Rs 200 crore. Recently, DGCA asked Spicejet to refund full fare for a flight

delayed by 4.5 hours.

Regulations permit foreign direct investment in the aviation sector by foreign airlines up to 49%. There have been reports of the carrier being in talks with overseas airlines for a stake sale, but these have not been confirmed by the company. There were reports that Kuwait Airways and Qatar Airways have evinced interest in buying a stake.

A SpiceJet spokesperson declined comment to a detailed questionnaire sent by FE as the company is in the silent period in the run-up to its earnings announcement on August 14.