The Supreme Court (SC) will hear a crucial payment dispute concerning SpiceJet on January 28, an inevitable coda to a long, bitter legal case that could give investors and employees of the low-fare airline anxious moments that passengers of a plane landing on a narrow airstrip usually face.
India’s top court will decide on a petition by Swiss financial services company Credit Suisse AG to wind up SpiceJet after a decade-long standoff over unpaid dues of almost Rs 180 crore. SpiceJet boss Ajay Singh has to kiss and make up with Credit Suisse to avoid liquidation should he lose the case but that will blow a hole in the airline’s already precarious finances.
Not a pretty picture
Gurgaon-based SpiceJet last turned a profit in December 2019. Losses in the second quarter of this financial year grew to more than Rs 561 crore from a year ago. The stock is down about 30 percent in the past year. The negative net worth of the airline is close to what it was in 2014, when it was about to shut operations.
SpiceJet shares gained 1 percent to Rs 63.25 at close on the Bombay Stock Exchange on January 21.
SpiceJet received cash infusion of an undisclosed amount in November related to the grounding of Boeing 737 MAX aircraft, but a series of settlements with lessors such as CDB Aviation and Avolon is eroding that gain. In December, the airline ended a long-running dispute with De Havilland Aircraft of Canada by paying roughly Rs 320 crore.
All airlines, including SpiceJet, have been pounded by the pandemic as swathes of people postponed air travel. SpiceJet, India’s second-largest airline by passengers carried, happens to be the only major carrier that flew fewer passengers in 2021 than in 2020.
Stacked against these bleak realities, the payments dispute with Credit Suisse could not have come at a more inappropriate time for SpiceJet.
Aviation analyst Ameya Joshi said the legal battles against so many creditors is a real challenge for SpiceJet. These cases will have a bearing on its future, said Joshi, a columnist for Moneycontrol.
When contacted, a spokesman for SpiceJet said a significant amount of the compensation money from Boeing remains available in cash, adding that the settlement with the American company is confidential. “The agreement will assist the airline to have younger fleet which will increase operational efficiency and support cash-profitable operations.”
In February 2015, Sun TV promoter Kalanithi Maran and KAL Airways, his investment vehicle, transferred their 58.46 percent in SpiceJet to Singh for Rs 2 after its operations were disrupted by crushing cash troubles. Singh, a cofounder of SpiceJet, assumed the airline’s liabilities of about Rs 3,500 crore, according to SpiceJet.
A period of boom followed as prices of jet fuel, a vital cost element in airline operations, tanked. Singh, who owns 59.46% in SpiceJet with his family, was widely credited with reviving the airline.
All outstanding dues and liabilities transferred from the Marans were paid in full by Singh, according to the SpiceJet spokesman. The recent settlements emanate out of Covid and the grounding of MAX planes, he said, adding that the payments will significantly reduce the airline’s cost burden and older dues.
SpiceJet is counting on its logistics business to revive fortunes. Last year, the airline decided to transfer its cargo business to a unit named SpiceXpress.
The transfer of its logistics business will result in a one-time gain of Rs 2,555.77 crore for SpiceJet, wiping out its substantial negative net worth, said the spokesman. “From a $30-40 million business a year, our logistics business is slated to grow over $350 million and is growing rapidly. Financially, we are on a much stronger footing now.”
The SpiceJet spokesman said the Credit Suisse dispute was discovered “much later” that certain approvals were not in place and since then the matter has been under dispute between the parties.
Credit Suisse became embroiled in the case because of its financing agreement on September 26, 2012 with a Swiss company named SR Technics that SpiceJet hired the previous year to maintain its planes and engines. SR Technics assigned all rights to receive payments from SpiceJet to Credit Suisse.
A desperate legal fight
Lawyers of SpiceJet tried every trick in the legal book to quash the winding-up petition filed in 2015. The airline contended that bills of exchange executed by SR Technics lacked stamping according to Indian law and ergo, cannot be enforced in India. SpiceJet argued that Credit Suisse is not a creditor and “in the absence of any contractual relationship of a debtor and creditor,” a winding-up petition does not stand.
It even challenged the petition on the grounds that SR Technics was not registered with the Directorate General of Civil Aviation, the Indian aviation regulator.
A judge of the Madras High Court ruled in favour of Credit Suisse, picking holes in all these arguments. The judge noted that SpiceJet continued to avail of the services of SR Technics and “it cannot now turn around and say there is a violation” of aviation rules and ordered an official liquidator to seize the assets of the airline.
SpiceJet challenged the judge’s order last month; he later stayed the order for three weeks so that the airline could appeal. A division bench rejected the appeal about two weeks ago but extended the stay. SpiceJet petitioned the Supreme Court soon after.
Jyoti A Singh, founder, AJA Legal and Associates, said after the rulings in the Madras High Court, the natural recourse for SpiceJet was to challenge the same before the Supreme Court. “In case the stay is continued by the Supreme Court, the orders passed by the Madras High Court would not have any impact on SpiceJet's business at this stage,” she said.
“We believe we have a strong case on merits,” said the SpiceJet spokesman.
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