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SpiceJet’s results are boringly the same

Accumulated losses, eroding net worth, and minuscule cash in hand – the narrative for the airline has hardly changed since pre-Covid times.

September 01, 2022 / 10:45 AM IST

SpiceJet declared its much-delayed financial results, including those for the fourth quarter of FY22 and the full previous financial year, and the first quarter of FY23.

The airline posted a loss of Rs 457.97 crore in the fourth quarter of FY22, while the full-year loss was Rs 1,725.46. The carrier reported a loss of Rs 788.82 crore in the three months ended June, which was the best quarter in terms of passenger traffic after the lockdown.

Foreign exchange losses have played a significant part in eroding the earnings of both SpiceJet and IndiGo. However, while SpiceJet’s revenue from operations was one-fifth of IndiGo’s in the April-June quarter, its loss was three-fourths of what IndiGo reported.

Also Read | SpiceJet CFO Sanjeev Taneja resigns amid airline's widening quarterly loss

The SpiceJet auditors referred to “material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern.” While on the one hand, the airline has progressed from one settlement to another, on the other, it struggles with one problem after another.

The airline signed settlement agreements with aircraft lessor Goshawk Aviation and its affiliated leasing entities; with Credit Suisse and SR Technics; with De Havilland Aircraft of Canada, Boeing, CDB Aviation, BOC Aviation, and Avolon; and with the Airports Authority of India, which helped it move away from the cash ‘n’ carry mode for services availed.

However, the Directorate General of Civil Aviation has ordered SpiceJet to operate only 50 percent of its approved schedule over concerns of flight safety. Additionally, salary payments have been delayed and lessors are filing claims to deregister aircraft.

Boringly the same?

Aditya Ghosh, a co-founder at Akasa Air and former president at IndiGo, once said IndiGo is plain boring for the consistency with which its model is executed.

The financials of SpiceJet have also probably reached a level where it is boringly the same each time – accumulated losses, eroding net worth, and minuscule cash in hand. The narrative has hardly changed from the pre-Covid time to post-lockdown.

Insufficient funds

SpiceJet had an accumulated loss of Rs 5,912.6 crore at the end of the previous financial year, while current liabilities exceed current assets by Rs 6,408.66 crore. The airline has a next-to-negligible cash balance.

While the board has approved raising $200 million, which is roughly equivalent to Rs 1,590 crore, this is less than the loss the airline recorded last year and would hardly make a difference when net worth has eroded as much.

Also Read | SpiceJet delays salaries for second straight month, payments made in 'graded format'

The situation, going by the numbers, is worse than what it was in 2014, when the airline went to the brink and changed hands. The issue with KAL Airways of the Marans continues to be around without settlement.

Cargo too small

SpiceXpress and Logistics, the airline’s cargo subsidiary, has approvals to be hived off but hasn’t as yet. It reported profit of Rs 46 crore in FY22 and profit of Rs 18.35 crore in Q1 of this financial year.

However, these numbers are too small to make any positive impact in the overall scheme of things. In the past, the airline effectively used the widebody aircraft on wet lease to add capacity when needed, but the opening up of civil aviation worldwide and the return of belly space puts yields under pressure.

The expansion of logistics company Blue Dart Express and the entry of IndiGo with dedicated freighters are the other threats to SpiceJet’s cargo business.

Tail note

SpiceJet slipped from No. 2 in the past to fifth position last month. Market share is a function of capacity deployment and the airline has not been able to deploy capacity for more than one reason.

As it makes another pitch for investment from a Gulf carrier or a domestic group, its track record of following up on announcements until fructification has been poor. From a codeshare with Emirates to a hub at Ras Al Khaimah in the UAE, there has been no word after these announcements.

For at least two major airlines in the past, time ran out before funds could be arranged. History shows that airlines have gone down, not during a crisis but after, and as the world emerges from the pandemic in terms of traffic, which way will things swing for SpiceJet?

The unspoken factor in the financials is the human cost. With the sector opening up, there will be more opportunities for the workforce, unlike in the past two years.

An exodus, to begin with, could be interpreted as a good thing by the airline, thinking it is losing the flab. However, in the longer run, it is the people who run any organisation and this could hurt.

Ameya Joshi runs the aviation analysis website Network Thoughts.
Tags: #SpiceJet
first published: Sep 1, 2022 10:45 am