Troubled low-cost carrier SpiceJet got a major reprieve on Tuesday with the government offering a bailout package.
Troubled low-cost carrier SpiceJet got a major reprieve on Tuesday with the government offering a bailout package to help it tide over the crisis as it felt that its closure at this stage would be a major setback to the domestic aviation sector.
A civil aviation ministry statement said that banks have been requested to give the airline a working capital loan up to R600 crore backed by a personal guarantee from the company’s chairman, Kalanithi Maran. This needs to be paid back within eight weeks by when the airline is expected to arrange for long-term investments.
Additionally, the aviation ministry has urged the finance ministry to permit external commercial borrowings for working capital as special dispensation as was done in the 2012 when a similar crisis had arisen in the aviation sector.
The package also allowed the airline to accept ticket bookings till March 31 against its earlier decision to limit it to a month and gave it 15 more days to clear pending airport and fuel charges — the airline’s daily offtake is about R5 crore, so this would amount to about R75 crore on top of R14 crore in pending dues.
Though the measures come as a relief for the airline, which has been battling to stay afloat amid a cash crunch, analysts said that the crisis is still not over for the company and its long-term survival would depend on fresh fund infusion from the promoters as well investors. According to aviation consultancy firm CAPA, the airline needs a minimum of around $350 million to clean its balance sheet.
With consumer confidence hitting a low with regard to the airline, it is doubtful whether the carrier would be able to shore up cash through advance ticket bookings, which it has been doing earlier during the year. In fact, the airline had urged the authorities to allow it to accept bookings beyond a month as this was the only way it could shore up funds to pay its dues and staff salaries.
SpiceJet’s financial liabilities currently stands at about R2,000 crore.
Mahesh Sharma, minister of state for civil aviation, said, “Since Monday all concerned government departments including the finance and petroleum ministries have been working hard to find a solution (for SpiceJet). The problem is that the government cannot give major support to one player, only the industry as a whole if it is suffering. We have started working on something for the industry, you will see the results in three to six months.”
The SpiceJet scrip, which had fallen as much as 17% earlier in the day, ended up 2.6% on news of the breather the airline finally managed to get.
Though SpiceJet officials were finally successful in clinching a reprieve, the day began on a bad note for it when most flights had to be cancelled or delayed till about 12 noon because oil marketing companies denied fuel uplift at several stations like Delhi, Mumbai and Hyderabad. Airline officials were, however, able to negotiate a deal with the OMCs under which operations resumed to a major extent in the second part of the day.
Without fuel, the airline’s plan to continue operations and improve its financials would have been seriously hampered. Out of the the total liabilities of over R2,000 crore, SpiceJet needs to clear dues of R1,400 crore immediately to continue operations, a civil aviation ministry official said on Monday after day-long meetings with the company management to find a lifeline. Of this, R280 crore is owed to Airport Authority of India and private airports. Domestic banks also have an exposure of about R300 crore to the airline.
Incidentally, OMCs like Hindustan Petroleum and IndianOil had already put the carrier on a cash-and-carry mode several weeks ago. Cash and carry means that the airline has to pay for fuel every time a flight takes off, instead of operating on a credit line.
Additionally, non-payment of dues has also led other vendors like in-flight caterers to also stop servicing the airline from Monday, while SpiceJet has also not paid salaries of pilots and senior management who fall in the top 15% wage bracket.
On Monday morning, the Spicejet management had also sent an email to all pilots asking them to be prepared for any eventuality in terms of survival of the airline. Later in the day, Maran was understood to have given a personal assurance to the government for payment of airport dues.
SpiceJet, which posted a record loss of R1,003 crore in 2013-14 and has run up accumulated losses of R2,958 crore, currently apart has a negative net worth of R1,459 crore.