Spicejet: For want of Rs 600 crore

The government should have helped out Spicejet, it would have won itself a lot of goodwill…

In a capitalist economy, it’s hard to recommend a bailout; enterprises should be allowed to die if they’re bankrupt because there’s little point throwing good money after bad. With SpiceJet, however, it could have gone the other way simply because the airline was running an efficient operation and because the current promoters have brought in a fair amount of money.

There’s no doubt, revenues having been falling short of the costs in the last few months and the competition is creeping up. But the sharp drop in the cost of ATF—with crude oil prices having crashed close to 45% from their peak—could have changed that completely because fuel costs account for roughly 45% of Spicejet’s total costs. By one estimate, the airline would have made a profit in FY16, at even $95 per barrel of fuel, albeit a small one of Rs 200 crore; with oil at $60, that profit would have been fatter.

Since the government has bailed out Air India, year after year, for more than a decade now, at a humungous cost to the taxpayer—-Rs 44,000 crore of debt and losses of Rs 5,000 crore last year, not to mention the accumulated losses—it is churlish that the government hasn’t helped SpiceJet with a paltry sum of Rs 600 crore and some 15 days of credit for fuel purchases.

The civil aviation ministry and the aviation regulator have been a tad too harsh. Had the regulator allowed SpiceJet to sell tickets for future months, and not asked it to cancel flights, the airline could have accessed funds and cashed in on the travel season, rachetting up the revenues. Having already scaled back the operations by cutting back on close to 150 flights, many of them loss–making routes, the airline’s passenger load factor was already improving. In the current fiscal so far, the airline had retired six aircraft earlier than schedule bringing down the fleet to around 50 aircraft.

There must be at least a dozen public sector companies that are far more inefficient and that are losing money hand over fist but the government continues to bail them out, at the cost of the taxpayer. Air India’s loss for the current fiscal is projected Rs 4,300 crore—that’s more than seven times the amount SpiceJet is looking for.

SpiceJet isn’t an Air India, which has thousands of employees whose productivity can at best be less than average and which has a salary bill that will put any business model in jeopardy. There airline has no hope in hell of making money yet the government continues to fund it—it recently infused some Rs 4,800 crore of equity—that’s eight times the cash SpiceJet was looking for—and the plan is to put in Rs 30,000 crore over a nine-year period.

Air India hasn’t been able to get its model right despite trying for years —it has pulled out of at least half a dozen loss-making international routes, yet it continues to bleed. The carrier’s loss, on the on the Delhi-Melbourne-Sydney route, alone, was Rs 70 lakh a day.

Spicejet is also not a Kingfisher; it didn’t attempt a foolhardy acquisition like the Mallya-owned airline did when it bought out Deccan Air. Spicejet didn’t try to be a full service airline and has succeeded in keeping costs down; it has borrowings of just about Rs 3,000 crore.

Indeed, there doesn’t seem to be as much concern about other private sector companies not being able to pay their dues; as the data shows, banks have lent sums to companies which don’t even make revenues that are as large as the loans, let alone operating profits. These loans are being restructured –which means banks are merely tweaking the terms to make it easier for the borrower —and as we have seen many of these companies are not able to survive despite all the hand-holding. There are hundreds of such companies and, in many instances, the banks do not even have adequate collateral. Banks should have given SpiceJet a chance; the risks are far smaller and they would have helped an afficient service provider, crtiical for infratsructure, survive. Even now it’s not too late. The government can win some brownie points, at virtually no cost.

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