The promoter of beleaguered carrier SpiceJet, Ajay Singh, is understood to be in discussions with a mid-eastern carrier and an Indian conglomerate for a possible stake sale in the low-cost airline, persons familiar with the development indicated to FE. Singh holds a fairly large stake of close to 60% in SpiceJet, which has accumulated losses of an estimated Rs 5,000 crore and a negative net worth.
The airline has been bleeding and needs a big dose of capital infusion. “The new promoters would need to inject a large amount of capital to revive the business. In this context, the equity has little value,” an analyst explained.
The SpiceJet stock rallied on Wednesday after the news of the prospective sale broke and ended at Rs 49.85 apiece on the BSE, up 12.73% over the previous close.
When contacted, a spokesperson for the airline said: “The company continues to be in discussions with various investors to secure sustainable financing and will make appropriate disclosures in accordance with applicable regulations.”
Hit by curtailed operations in the wake of the pandemic, the airline reported a loss of Rs 1,267.5 crore for the nine months to December 2021 and has not reported results since. In early February, the firm’s auditors had expressed doubts on the ability of the airline to continue as a ‘going concern’. They had also noted the loss in the December 2020 quarter would have been bigger had it not recognised other income and foreign exchange gains on account of compensation expected from Boeing for the grounding of 737 MAX aircraft.
SpiceJet’s auditors had noted that the group had incurred a net loss, after other comprehensive income, of Rs 1,028.18 crore in FY21. As of March 31, 2021, the accumulated losses amount to Rs 4,223.38 crore, which had resulted in complete erosion of its net worth. The current liabilities had exceeded the current assets by Rs 5,184.25 crore as on March 31, 2021. According to analysts at HSBC, the net debt to Ebitda at the end of March 2021 was 12.6 times.
Last week, the DGCA ordered SpiceJet to operate only 50% of its approved flights in the summer schedule, for eight weeks, owing to numerous technical malfunction incidents. To increase the departures beyond 50%, the airline would need to demonstrate to the DGCA, it has sufficient technical support and financial resources. The order came following a show-cause notice issued to the carrier on July 5 that said the airline had failed to establish a safe, efficient and reliable air transport service. The airline was given three weeks to respond.
The Indian aviation market offers promise. India is expected to overtake China and the US as the world’s third-largest air passenger market in the next 10 years, by 2030, according to the International Air Transport Association (IATA). Further, the rising demand in the sector has pushed up demand for aircraft; the number of airplanes is expected to reach 1,100 planes by 2027. The entry of Akasa Air, the re-entry of Jet Airways and the restructuring of Air India will change the competitive landscape.