Mounting losses, safety issues — how is SpiceJet still afloat?

Perhaps the biggest puzzle that nobody in the Indian airline industry has been able to solve is how SpiceJet continues to survive despite posting huge losses every quarter. The airline was also involved in several incidents that recently forced the regulator to ban 90 of its pilots from flying.

Earlier this week, the airline posted its highest-ever loss in its lifetime. Its losses widened to ₹838 crore during the second quarter of the current fiscal (2022-23), compared with ₹561 crore in the same period last year. Revenues from operations grew 45.43 per cent to ₹1,953 crore. Out of the total loss, ₹260 crore came from foreign exchange currency loss.

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However, the airline’s freight services made a small profit of around ₹21 crore. Some of the positives from the September quarter results were the airline’s improved load factor of 85 per cent, which was also the industry’s highest, while there was an increase in the number of flights by 30 per cent.

“The sector has been witness to prolonged challenges. However, the recent enhancement in the ECLGS (Emergency Credit Line Guarantee Scheme) limit to ₹1,500 crore by the government, recognising these challenges, will go a long way in providing the much-needed stability to the sector,” Ajay Singh, SpiceJet CEO and MD, said in a statement.

‘Ready to meet demand’

“The high ATF (aviation turbine fuel) prices and depreciating rupee continue to be a downer for the industry, but the overall outlook for the sector remains positive,” said Singh. “Having completed a series of settlements with most of our major partners and the upcoming hive-off of our cargo and logistics arm, we expect significant improvements in our operating environment.”

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“We are well placed to script a new accelerated growth phase and meet the resurgent demand from passenger and cargo customers,” he further said. “However, the ECLGS is additional debt on the books and will have to be repaid at some point.”

Brave words from the head of an airline whose market share dropped to 7.3 per cent in September from 9.5 per cent in June, pushing its ranking to number 5, from number 2, in the pecking order. This when the passenger traffic is returning to pre-COVID levels.

During the first nine months of the calendar year, the passenger traffic jumped 65 per cent to 87.4 million and is expected to reach the pre-COVID level of around 100 million in a few months. Analysts tracking the company point out that the loss of market share indicates a larger problem for the airline. 

Liabilities exceed assets

“SpiceJet results continue to reflect a business with significantly eroded fundamentals and an extremely fragile balance sheet,” Satyendra Pandey, Managing Partner with aviation consultancy firm AT-TV, told The Federal.

Something which even the auditors of the airline concur with. In their latest report, Walker Chandiok & Co, the airline’s auditors, noted that its accumulated losses amounted to ₹7,535 crore, resulting in the complete erosion of its net worth. The current liabilities have exceeded its current assets by ₹7,646 crore as on September 30, 2022. 

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“These conditions and other matters outlined in the aforesaid note indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern,” the report said.

While these results and the auditors’ note paint a grim picture of the airline’s finances, analysts tracking the company point out it has suffered a loss of ₹6-7 crore daily. 

“Cash continues to be an issue, and the airline was carrying cash and equivalents of only around ₹60 crore for an operation that spans around 50 aircraft. The business is bleeding at an operating level, and several accounting adjustments have been made – on some, the auditor disagrees. On others, there has been a limited review or a qualified opinion,” Pandey told The Federal.

Growing discontent

As if this is not enough, negative feedback about the airline’s service has been mounting. A passenger recently wrote in Skytrax, a UK-based consultancy which runs an airline review and ranking site, that flight delays are common now. 

“Always had a bad experience with SpiceJet but still have to travel because of sector and flight time limitations. But they keep on amusing you every time you fly with them. If you think your last flight experience was bad, they make sure the next one is worse,” a Skytrax verified passenger said.

Alarming incidents

Safety issues, meanwhile, are on the rise. Perhaps the worst incident reported so far was regarding the weather radar mounted on the nose of the aircraft. A pilot flying an SG-945 from Mumbai to Durgapur on May 1 found out, to his horror, that the weather radar had stopped working soon after take-off. The weather radar is deployed to detect thunderstorms and lightning and, if detected early, the pilot can steer the flight to another route, ensuring the safety of his passengers. 

Unfortunately, while the flights of other airlines on the same route were able to steer clear of the incoming thunderstorms, the SpiceJet flight was unable to do so, resulting in injuries to 12 passengers. One of these passengers succumbed to injuries five months later.

AT-TV’s Pandey said the last quarter saw several events, including curtailment of flights by the regulator, aircraft repossession and inability to enter sale-and-leaseback transactions. 

Need for equity infusion

“The results indicate that an equity infusion is the need of the hour. Failing that, the airline will continue to operate in its current form. In addition, the rising interest rate environment and intense competitive dynamics don’t play out well for the airline,” Pandey said.

While equity infusion is something that the airline should immediately bring in, and it is focused on doing so as early as possible, an option that SpiceJet management can consider would be restructuring the entire operations and renegotiating contract terms with vendors and with leasing companies as well. 

As far as safety issues are concerned, the airline should prioritise them. Because disasters don’t warn their victims, any negligence might destroy the airline.