How Delayed Fundraise And The MAX Mess Hurt SpiceJet

At first, the airline did secure the number two spot, after IndiGo, for two consecutive years with a 14.9% market share in 2019 and 2020, up from 12.3% in 2018. However, ever since it has been on a downhill road.

The domestic market share of the low-cost airline fell to 10.5% in 2021, pushing it to the third place with state-run consolidated Air India and Alliance Air pack pipping it to the second spot. According to the latest data, SpiceJet now holds the fourth position in India along with Tata Group-run Air India. IndiGo has been India’s largest airline for over a decade, with a 56.1% share, followed by Vistara (9.2%), and GoFIRST at 8.8%.

SpiceJet had faced two fundamental issues prior to the covid-19 pandemic— one, it could do little about, and the other was in its control, chief executive officer and director, Centre for Aviation CAPA India, Kapil Kaul told Mint.

“What was not in their hands was the 737 MAX issue. If you look at their fleet delivery programme, they would have generated more sale and leaseback if the 737 MAX aircraft had been inducted in time... it took a significant toll on SpiceJet. Had the 737 MAX been orderly the result would have been different but it was out of their hands," Kaul said.

After the Boeing MAX aircraft was grounded by aviation regulators across the globe in March 2019 following two fatal crashes, SpiceJet had to also delist 13 MAX aircraft in its fleet. The ban was revoked in 2021 and in India, the regulator approved the entry into service of the grounded fleet of the fuel-efficient aircraft in August that year.

While the total order book of SpiceJet for MAX extended to 205 airplanes with firm orders of 155 aircraft, the fleet size of the airline shrank to 88 in FY22 from 114 in 2019-20. According to flight tracking website flightradar24, the airline currently has 68 aircraft in its fleet, out of which more than 25 have not been in operation for at least seven days, leaving an operational fleet of around 43 planes.

“What was in their hands was raising capital on time—they had opportunities before covid to raise capital. Unfortunately, they did not know covid was coming and they kept delaying it (fund raising)," Kaul added.

The airline has attempted to raise funds several times in the last two years but the discussions have not been fruitful so far. SpiceJet said last year that it was engaged with investment bankers to raise up to $200 million to achieve its future plans. There were also plans to get strategic investors on board via a stake sale but none of the initiatives have taken off yet.

“The airline’s promoter has been trying to raise funds via multiple platforms as it is a crucial stage for SpiceJet and now the management also knows that. The cargo business, which was supposed to be hived off in 2022 itself, has also been delayed. There is no clarity on the airline’s plan of raising $200 million. So far, ECLGS (Emergency Credit Line Guarantee Scheme) has been its only saviour," an industry executive said.

The airline has received ₹358 crore so far under ECLGS and will raise more funds via ECLGS as and when required, a SpiceJet spokesperson said.

On 17 August, 2021, SpiceJet had announced it was transferring its cargo and logistics services on a slump sale basis to its subsidiary SpiceXpress as it would allow the company to raise funds independently of the budget carrier and grow rapidly.

Banks and shareholders gave their approval to hive off SpiceXpress in July 2022 and the carrier’s CMD Ajay Singh said the bifurcation will be done by the first week of August. The timeline for this exercise was later postponed to the Oct-Dec quarter of 2022 but it is yet to take place.Responding to Mint’s queries, the SpiceJet spokesperson said the plan to raise $200 million and the process to hive off SpiceXpress is underway.

“The company continues to be in discussions with various investors to secure sustainable financing and will make appropriate disclosures in accordance with applicable regulations," he said.

“SpiceJet has been inducting planes at regular intervals as per its short term and long term requirements and aircraft induction will continue as per contracts with lessors and manufacturer," the spokesperson said.

The lack of funds is also impacting the airline’s ability to expand operations. During Jan-Nov of 2022, SpiceJet flight departures stood at 82,512 flights, 47% down from the same period of pre-covid year of 2019. IndiGo flight departures during the same period were at 452,798 flights, 6% up from 2019 and for Vistara the flight departures in Jan-Nov were 48% more than in 2019 at 72,615 departures.

CAPA India said that while the airline showed “remarkable resilience" to sustain operations during covid, the after-effects of covid pandemic will be deep and long-lasting.

“The only way is to raise capital and they are trying to raise capital and they are trying to raise capital by hiving off cargo and possibly raising funds from strategic or financial investors. Without funding, frankly there is no game and I think they realise that," Kaul said.

For Oct-Dec, Elara Capital expects the airline’s passenger volume to improve 12% on quarter; however, it is expected to decline 5% on year due to 50% grounding of fleet based on regulatory restrictions.