Whammy after whammy, how's Ajay Singh keeping SpiceJet afloat?

Ajay Singh, SpiceJet's Chairman and Managing Director, would have headed any top multinational company if not for running an airline.

An IITian from Delhi and an MBA from Cornell Johnson Graduate School of Management, Singh chose to operate an airline instead, perhaps one of the most challenging jobs in the world.

Resurrection bid

In 2005, Singh co-founded SpiceJet and sold his stake five years later, only to return to buy a 58.5 per cent stake in the airline for Rs 2 from Chennai-based businessman Kalanithi Maran amidst its financial struggle and imminent closure.

One doesn't know whether Singh regrets his decision, but developments during the last few years indicate that SpiceJet finds itself in the same territory as in 2015.

Last week, the aviation regulator, the Directorate General of Civil Aviation (DGCA), placed SpiceJet under "enhanced surveillance" due to ongoing financial stress and operational deficiencies.

This decision followed a special audit conducted on August 7 and 8, which revealed shortcomings in the airline's engineering facilities. The DGCA's action aims to ensure the safety of SpiceJet's operations through increased spot checks and night surveillance.

What invited DGCA scrutiny?

The regulator's scrutiny was prompted by reports of flight cancellations and the airline's financial difficulties, which have persisted for several years.

This heightened surveillance is not unprecedented, as SpiceJet has faced similar measures during the previous two years as well due to its troubled financial history and operational challenges. Recently, passengers were also barred from boarding at Dubai Airport due to the airline's failure to clear dues, further highlighting its ongoing issues.

To say that the airline’s woes are multiplying by the day is nothing compared to what some of Singh’s peers keep wondering: Why has SpiceJet not closed down yet when those with lesser problems folded up earlier?

The situation that SpiceJet finds itself in points to several wrongs. Here is a deep dive into the issues:

Low morale among employees

Most employees are on tenterhooks, wondering whether they will last through the month. Last week, SpiceJet placed about 150 cabin crew members on furlough for three months after the DGCA put the airline on heightened surveillance, claiming that it would lead to curtailment of operations.

In 2024, SpiceJet laid off about 1,500 employees, approximately 15 per cent of its staff. The layoffs and other cost-saving measures are expected to save the airline around Rs 100 crore per year.

While this might lead to cost savings, it hasn’t done anything for the morale of the existing employees.

The airline has around 98 aircraft in its fleet, but not many are operational; it is in such deep financial trouble that it doesn’t even have excuses to defer paying salaries.

Dwindling finances

Such a crisis hasn’t prevented the management from placing a bid for the bankrupt Go First, even though its acquisition will lead to a situation where SpiceJet will end up with two types of aircraft in its fleet: Boeing and Airbus, hardly a prudent move especially when it is facing such an enormous financial stress.

SpiceJet's financial troubles have been a significant contributor to its downfall. The airline has posted losses for six consecutive years, with a combined net loss of Rs 5,885 crore.

As of late 2021, SpiceJet had cash and cash equivalents of just Rs 72.90 crore, while its total debt stood at Rs 1,151.65 crore. The airline's inability to pay vendors and suppliers on time has led to a shortage of spare parts, further exacerbating its financial troubles.

The airline plans to raise Rs 3,000 crore through a qualified institutional placement of shares. However, this infusion of funds is too little to impact the airline’s financial health positively.

Operational challenges

In addition to its financial woes, SpiceJet has also faced numerous operational challenges.

The airline has been plagued by frequent technical glitches and mid-air malfunctions, which have shaken public confidence in its safety and reliability.

The DGCA has noticed these incidents and asked SpiceJet to explain why action should not be taken against it.

Market share/On-time performance

SpiceJet's market share has also declined, dropping to 3.1 per cent in July 2024 from 5.6 per cent in January 2024.

In 2020, its market share was 14.9 per cent, down from 17.4 per cent in 2014. During the same period, IndiGo's market share grew from 31.8 per cent in 2014 to 62 per cent in 2024. In July 2024, SpiceJet carried 13,000 passengers daily, down from 60,000 in July 2019.

Daily flight departures decreased to 100 from 480 during the same period.

The DGCA data shows SpiceJet’s on-time performance has slipped to 29.3 per cent in Delhi, Mumbai, Bengaluru, and Hyderabad.

Legal battles

SpiceJet has also been embroiled in several legal battles, primarily with aircraft lessors seeking to recover unpaid dues. Over the past year, several engine and aircraft lessors have taken the legal route against SpiceJet, seeking its liquidation due to the airline's inability to settle its dues.

The Dubai airport has also prohibited passengers from checking in for their SpiceJet flights due to the airline's unpaid dues. Its legal battle with the former owner, Maran, who has sought compensation, is going through rounds of court without any decision.

In February 2015, Maran and KAL Airways transferred their 58.46 per cent stake in SpiceJet to Singh. As part of the deal, Maran was supposed to get redeemable warrants in return for the money invested by him while he was a promoter of the airline. However, Maran alleged that neither the convertible warrants nor the preference shares were issued to him.

Prospects for revival

The management has proposed a comprehensive overhaul plan, dubbed "SpiceJet 3.0," focusing on cost-cutting measures and operational improvements. This includes judicious spending, with all major expenditures requiring approval from the airline's leadership.

Since taking over the airline in 2015, the management may have tried its best to sustain the operations, but nothing much has yielded results.

Hence, inducting a foreign airline — like Vistara did Singapore Airlines — can help SpiceJet immensely.

But that is a decision that Singh will have to make, and it requires him to make a tough call on the airline's current state of affairs.