1. SpiceJet crisis began after clearing tax dues in October

SpiceJet crisis began after clearing tax dues in October

Move left bank accounts dry; survival depended on revenues from daily bookings

By: | Published: December 30, 2014 3:15 AM

Kalanithi Maran-promoted SpiceJet may have accumulated losses of over Rs 3,000 crore till date, but contrary to the popular perception, the sudden downward spiral of the airline did not begin with aviation regulator Directorate-General of Civil Aviation (DGCA) deciding to cap forward bookings to 30 days at the start of December.

Sources close to the development told FE that the question of survival actually first came up in October when the airline faced a “cash crunch” after clearing liabilities of about Rs 400 crore towards income tax and service taxes. The move suddenly left the bank accounts empty and left the airline to survive from daily earnings from forward bookings — about Rs 13-14 crore a day at the time.

“The legacy losses did the airline in. After paying the tax dues with penalties in August-October period this year, the airline faced a major cash crunch. It did not want to reduce fleet by returning aircraft because that would mean lesser seats to sell and lower revenue, but there was no choice,” the source said. “There was a point in November when the airline even thought of shutting down operations,” a second source added.

SpiceJet has returned 15 of its older Boeing 737 aircraft since July to cut maintenance costs. The current fleet stands at 20 B737 and 15 Bombardier Q400s operating a 230 daily flight schedule. The airline has since cleared income tax dues for 2013-14 and service tax dues till November 2014, but has about Rs 1,200-crore total liabilities across lessors, banks, airports and other vendors. The DGCA decision to cap bookings was actually the second blow. When on December 5, the regulator issued the order, daily revenues from forward bookings fell 90% within a week to a few lakh of rupees, said one of the sources. Contrast this to a far higher daily cost of operations of about Rs 8-9 crore.

The ban was finally lifted on December 16, when the civil aviation ministry decided to extend an olive branch by allowing SpiceJet to take bookings till March 31 and allowed it credit till December 31 for the airports run by Airports Authority of India. But by then, the damage was done, with the addition of mass flight cancellations between December 16 and 18 (when oil companies refused fuel) severely denting consumer confidence in the airline.

“It was like a bank run on the airline and hurt its image badly. Even after the booking cap was lifted, the collections from bookings are down 80% creating a working capital gap that resulted in the operational/fueling issues,” the first source said.

An airline executive added, “Even though the airline is refunding passengers, those forced to make alternate bookings at higher prices in the last minute or those who lost money on hotels they had booked are unlikely to trust SpiceJet again,” said the source, adding that white knight Ajay Singh may have a bigger challenge at hand than it seems.

With investment in the ailing carrier call of the hour — likely to come in by end-February — it now remains to be seen if the government will continue to support the airline after the December-31 deadline it has offered for AAI dues.

What is clear is that with the 2012 collapse of Kingfisher Airlines still fresh in public memory, no other agency — neither banks nor oil companies — are willing to offer easy terms.

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