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Last Updated : Nov 20, 2020 11:37 AM IST | Source: Moneycontrol.com

Is return of Boeing 737 Max good news for SpiceJet?

The airline's stock zoomed after news on the return of the Boeing aircraft. But is the airline ready to receive rest of the 737 Max order?

 
 
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The news of Boeing's 737 Max aircraft returning to service by the end of this year, sent SpiceJet's stock soaring on November 19.

What's the reason?

SpiceJet has among the biggest orders of the 737 Max aircraft. Also, 13 of these aircraft that were already delivered, have been grounded since the plane was suspended world over after being involved in twin tragedies.

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Their return will benefit the Indian low-cost airline. The 737 Max is more fuel-efficient, and overall, costs much lower to maintain than other aircraft.

By when will SpiceJet be able to operate its 737 Max?

In its Q2 results announcement, the airline indicated a timeline of early 2021. But it could take longer because of the regulatory approvals that are needed before the plane takes to the air again.

After getting the nod from the US regulatory body, the 737 Max will now be reviewed by the Indian aviation regulator, the DGCA. "These approvals may take some time," said a senior industry executive who is closely tracking developments on the Boeing aircraft.

But is the timing right? Passenger traffic is still slow, isn't it?

Passenger traffic has been improving. Domestic air traffic jumped by 33.67 percent month-on-month in October. The latest data from the Ministry of Civil Aviation shows flights have reached 60 percent of their pre-COVID-19 levels. Passenger traffic is now about half of the earlier level.

The government and some of the airlines, including IndiGo and Vistara, expect traffic to reach pre-COVID 19 levels in the first quarter of 2021.

If that does happen, the timing could turn out to be sweet for SpiceJet. The airline will need some charm and luck.

Does it mean that SpiceJet will be well-positioned to take the delivery of the rest of the 737 Max order?

Not really. And that is because the aircraft can be used on international routes.

The Indian domestic aviation market is recovering much better, and faster, than the international. SpiceJet, which has been trying to expand aggressively on international routes, would want to use the 737 Max aircraft on medium-haul routes. But that may not be easy. The government allows international travel only through special air travel bubbles. More importantly, passenger traffic in the international market is still subdued.

Interesting. Then what's better, getting compensation for the grounded aircraft or taking them back to service?

Good question. The compensation has been critical till now for SpiceJet to limit its losses, as seen in its Q2 results. Till now, SpiceJet has adjusted claims of Rs 950 crore from Boeing, on its books.  Some experts have opined that a grounded Max may work better for the airline, as of now. And that is why a delay in getting approvals may suit just fine with the carrier.

If that's so, can SpiceJet cancel or reschedule its order?

Many airlines have already done that. A Seattle Times report said that Boeing has lost some 800 of its 737 Max order, this year. That's out of the total order of a little over 4,000 aircraft.

Experts say that if an aircraft delivery is delayed by over a year, then the airline doesn't need to pay a penalty if it wants to cancel or reschedule the whole pipeline.

Till now, SpiceJet hasn't disclosed its plans. Sources say that the airline is in talks with Boeing. A changed timeline  - at present these aircraft were to be delivered over the next five years or so - may suit both the sides.

Meanwhile, Spicejet has added three wide-body cargo planes to its fleet, apart from a wide-body plane on a wet-lease.

Bottomline: Timing of getting the 13 grounded aircraft back into operations, and the delivery of the rest of the 737 Max order, will be critical.
First Published on Nov 20, 2020 11:37 am
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