SpiceJet’s turbulent journey takes interesting turn

SpiceJet innovated itself during the pandemic with the help of SpiceXpress, carrying cargo across the region and beyond.

After multiple announcements in the past, SpiceJet finally hived off SpiceXpress, its logistics arm, into a separate company. The new company will be known as SpiceXpress and Logistics Private Limited.

While the company talks about SpiceXpress and its customer focus on logistics, this hiving off actually helps SpiceJet more than SpiceXpress. This gives a one-time gain of Rs 2,555.77 crore to SpiceJet, since the sale was on slump sale basis and helps the company reduce its negative net worth. At the end of the third quarter of financial year 2022-23 (Q3FY23), the airline had a negative net worth of Rs 5,800 crore.

The airline restructured over $100 million in outstanding dues to aircraft leasing firm Carlyle Aviation Partners, into equity shares and compulsorily convertible debentures (CCDs). The Board of Directors of SpiceJet Ltd on February 27 approved issuing fresh equity shares worth $29.5 million (Rs 244.28 crore) to Carlyle Aviation Partners at Rs 48 per share or the SEBI-determined price, whichever is higher.

These two decisions help the airline reduce the negative net worth and liability at the same time.

SpiceJet innovated itself during the pandemic with the help of SpiceXpress, carrying cargo across the region and beyond. The airline converted some of its Q400s to carry cargo and utilised the cargo-on-seat option to fly to countries in the region. For longer missions, it leased aircraft from companies specialising in Aircraft, Crew, Maintenance and Insurance (ACMI) and operated to places hitherto not connected by airlines in India.

The airline inducted dedicated freighters for SpiceXpress and operated a fleet of over 10 aircraft at one point in time, which included its own as well as wet-leased aircraft. Times, though, have changed since then. SpiceXpress itself has shrunk. All the wet-leased aircraft have long gone back and its own freighters have been returned to lessors. Two of these have come back to India, but as part of Blue Dart, which has investments from DHL.

The market, too, has changed significantly since then. IndiGo, which only had the belly capacity until then, decided to get into dedicated freighters, and now has two A321Fs as part of its fleet. Pradhaan Air, a start-up based out of Delhi, has one dedicated A320F, and Blue Dart has expanded. The return of almost the entire belly capacity has also put pressure on yields for dedicated freighters. Amazon, with its local presence, has own aircraft at its beck and call in India.

Question mark on SpiceJet continues

The auditors have time and again talked about SpiceJet’s ability to continue as a going concern. The airline declared profits of Rs 110 crore in the last quarter, but the year is already seeing a loss of over Rs 1,000 crore. SpiceXpress has a net profit of Rs 51.4 crore in the first three quarters, which is a trickle in the ocean of losses.

The airline has shrunk remarkably, has had issues with salaries, and On-Time Performance isn't one of the best with frequent complaints from passengers. All of this when the airline is not impacted by the ongoing engine issues which have largely impacted Go First and IndiGo.

The balance sheet clean-up will help the airline go to the market to raise more cash. But does the airline have a plan to not land up in a similar situation in future?

The FDI opportunity

What would SpiceXpress be eyeing? The SpiceJet family is the only airline which is not backed by a large conglomerate or family. The quarter of Air India ― Air India Express, AirAsia India and Vistara ― are backed by the Tatas, while market leader IndiGo is backed by Interglobe. Go First is the airline venture of the Wadias, while newbie Akasa Air has investments from the Jhunjhunwala family. Even Star Air ― the regional carrier ― has the Ghodawat group backing it. For many, SpiceJet surviving the pandemic has been an unsolved mystery. But now that it has, what is the play from here on?

Cargo has been a profitable business for a long time. The testament comes from the balance sheet of Blue Dart, which has remained profitable for long and has grown steadily unlike the swings of scheduled commercial airlines.

A cut-throat aviation market like India has seen failures at repeated intervals. Foreign direct investment (FDI) into aviation has not been a sure shot way of winning either. Jet Airways, which had 24 percent stake from Etihad, shut down. AirAsia India, the JV of the Tatas with AirAsia Bhd, never recorded profits, and the Tata group had to purchase AirAsia Bhd’s stake in it. A joint venture (JV) or FDI in cargo, though, has more potential, and with DHL tied up with Blue Dart, are global players keen to work with SpiceXpress to open up new points in their global network? UPS, and Interglobe, the parent firm, of IndiGo, are already working together after announcing a 50:50 joint venture. FedEx has investments in logistics start-up Delhivery. What does that leave on the table then for SpiceJet? The decisions are in the right direction, but is there enough runway left for take-off?