25 highlights
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It was mid-March 2019. The aviation world was still reeling from the shock of twin air tragedies involving Boeing 737 Max aircraft. In fact, the second one, involving an Ethiopian Airlines flight which crashed killing 157 people, had happened just a few days before, on 10 March. Like aviation regulators around the world, the DGCA too grounded the aircraft in India. But SpiceJet, which was one of two airlines—the other being Jet Airways—to operate the aircraft in India, continued to fly the planes.
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The industry meeting was held days after the DGCA ban. “At the meeting, an official of the DGCA actually thanked SpiceJet executives for their cooperation with the grounding of the aircraft, rather than castigate them. Executives from other airlines in the room could not believe their ears,” added the official mentioned above.
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On 10 April, the aviation regulator partially lifted the ban on the Boeing 737 Max aircraft. Now, international airlines could fly the plane over Indian airspace. Lessors too had been allowed to fly grounded Boeing 737 Max aircraft outside the country. But the ban on operating the aircraft in India remained. Who benefited?
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SpiceJet once again. After all the airline had already accounted for over Rs 1,000 crore as compensation from Boeing for the 13 grounded 737 Max aircraft it had in its fleet.
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“It is yet not clear who is delaying bringing back the 737 Max in India. The DGCA or SpiceJet,” he added.
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There are two aspects to Singh’s public persona. There is the promoter, chairman and managing director of SpiceJet. And then there is the functionary of the ruling Bharatiya Janata Party.
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That Singh continues to wield influence with the dispensation was clear when the prime minister inaugurated the seaplace services of the airline’s unit, SpiceShuttle, at Ahmedabad in November last year. A few weeks later, home minister Amit Shah launched SpiceHealth, a chain of COVID-19 testing labs run by the SpiceJet chairman’s daughter, Avani Singh.
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“Everyone, from lessors to vendors, treats you differently if they think you have access and the backing of the policymakers,” says a senior industry executive who has worked across private airlines in India, asking not to be named.
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Lessors, oil marketing companies, airports and vendors are at the airline’s doorstep, demanding that their dues be cleared. Cash flow has dried up. Bookings have plunged by 90% on some routes, and passenger loads are below the critical 75% mark that is needed to cover costs.
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Though the airline did not disclose the free cash it has in hand, analysts say it is below Rs 100 crore. Its liabilities? Over Rs 14,000 crore.
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The Airports Authority of India is pursuing a case against SpiceJet in the Delhi high court, where its counsel have aired doubts about the airline’s intention to clear arrears.
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Sources in the industry said lessors have already taken back a few aircraft from SpiceJet. “No other airline in India has returned an aircraft because of financial constraints,” an industry executive in the know said.
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The airline has already lost a $43 million suit against aircraft manufacturer De Havilland for non-payment and failure to take delivery of planes.
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“Last year, lessors and vendors were lenient with payments as COVID-19 had hit everyone equally badly. But today, that is not the case. For instance, lessors would want to take back aircraft as they would have opportunities to lease out the planes to other airlines that would be recovering better,” says an executive with a consultancy firm
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It was a few weeks later, in January 2015, that Singh once again took charge of the airline, having bought it back from Maran. The turnaround that he went on to script is now part of industry folklore.
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Mahajan got Singh to launch two new channels for Doordarshan, the state-owned broadcaster. Both did well. It was even rumoured that Mahajan helped fund SpiceJet, when it was founded in 2004. Singh vehemently denied this.
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Aided by low fuel prices, the airline used the cash generated from operations to clear dues with vendors and lessors.
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Over the next three years, the airline generated Rs 1,800 crore in cash, and its profitability was awarded by investors. SpiceJet’s stock rose by over 125% in 2017 alone.
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But rising crude prices and volatility in currency (an important factor for airlines as they pay lease rentals, maintenance and fuel costs in dollars) saw SpiceJet incurring losses in fiscal 2019.
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“Singh should have also built management bandwidth by lateral hiring,” the airline executive cited above added. In fact, he and others in the industry wondered why Singh, unlike a Goyal or a Bhatia, did not entrust day-to-day operations to professionals.
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“He should have raised equity and created a reserve to see through days of liquidity crunch,” says an executive with a private airline, on condition of anonymity.
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After the turnaround, Singh, now 55, seemed to be in a hurry to garner market share from IndiGo. Nothing otherwise explains a decision that has come under scrutiny in recent weeks: induction of over 30 aircraft that were earlier operated by Jet Airways.
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Being a Boeing 737 operator, SpiceJet availed the opportunity to mitigate the negative impact of grounded 737 Max aircraft. SpiceJet’s ability to get planes on lease quickly helped it get prime slots at key metro airports
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But these old aircraft couldn’t match the 737 Max in cost efficiency. “These aircraft were over 10 years old, consumed too much fuel and had high maintenance costs,”
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He was the first to spot one in cargo operations, as the country suddenly needed tonnes of medical supplies, and scaled up SpiceXpress. Undoubtedly, without the cargo vertical, the airline would have struggled to see through the lockdown months.