In a major show of support to beleaguered airline Spicejet, the government on Tuesday allowed the low-cost carrier to accept ticket bookings for up to three months – till March 31 next year. The airline has also been offered 15 more days to clear pending airport and fuel charges.
This comes after the aviation regulator Directorate General of Civil Aviation earlier this month prohibited the Kalanithi Maran promoted airline to take bookings beyond 30 days due to climbing financial liabilities that currently stands at about Rs 2,000 crore. Lifting this ban was a key request made by the airline management as it would give it access to working capital from advance ticket sales and help it stay afloat till a long-term investor is found.
Mahesh Sharma, MoS for civil aviation said, “Since yesterday (Monday) all concerned government departments including the finance and petroleum ministry 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 3-6 months.”
Another aviation ministry official added, “A letter was sent today asking both the Airports Authority of India (AAI) and oil marketing companies (OMCs) to give 15 more days to Spicejet to clear pending dues. The 30 day booking limit has also been lifted, and is expected to be of major benefit to them”
The Spicejet scrip climbed 2.58% up to Rs 13.90 on Tuesday on the back of news of support from the government.
On a day when a flurry of positive developments poured in, the airline ironically saw most flights being cancelled or delayed till about 12 noon because OMCs like Reliance 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 for 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 Rs 2,000 crores, Spicejet needs to clear dues of Rs 1,400 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, Rs 280 crore is owed to AAI and private airports. Domestic banks also have an exposure of about Rs 300 crore to the airline.
Petroleum Minister Dharmendra Pradhan told FE, “We do not interfere in day to day working of the OMCs. Supplying to airlines is a commercial decision. In case government takes a holistic decision (for Spicejet), we would follow the same.”
In a response to queries on flight cancellations, a Spicejet spokesperson said, “There was a temporary operational issue. Flights have now resumed.”
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, Spicejet management had also sent an email to all pilots asking them to be prepared for any eventuality in terms of survival for the airline. Later in the day, Kalanithi Maran was understood to have given a personal guarantee to the government for payment of airport dues.
SpiceJet, which posted a record loss of Rs 1,003 crore in 2013-14 and has run up accumulated losses of Rs 2,958 crore, currently apart has a negative net worth of Rs 1,459 crore.