SpiceJet plans a turnaround, but faces a challenge

The successful fundraising has allowed the airline to settle claims of about $308.4 million at a negotiated amount of $76.1 million, the airline’s chief business officer Debojo Mahrshi told The Hindu. 
| Photo Credit: Special Arrangement

In its bid to revive the ailing airline and its grounded fleet, SpiceJet will spend half of the ₹3,000 crore raised last September in paying off dues owed to lessors and vendors, and another ₹800 crore for making its planes airworthy.

But these efforts come at a time when the industry is facing headwinds as new aircraft production remains slow and leased planes have become scarce, forcing airlines to maintain older fleets. This has brought the maintenance and repair markets under pressure as well, which have also been already strained by parts shortages caused by COVID-19 and the Russia-Ukraine war, which disrupted the supply of materials like titanium for jet parts.

In September 2024, the airline successfully raised ₹3,000 crore through Qualified Institutional Placement (QIP), which attracted top-tier institutional investors and mutual funds including Goldman Sachs (Singapore), Morgan Stanley Asia, BNP Paribas Financial Markets ODI, among others.

This has allowed the airline to settle claims of about $308.4 million at a negotiated amount of $76.1 million, the airline’s chief business officer Debojo Mahrshi told The Hindu in response to an email questionnaire. Many of these parties had dragged it to court over dues and even moved pleas for liquidation.

The terms of settlement also allow it to continue to operate the planes leased from the same lessors, barring where they were already returned to the lessors, according to the top executive. At the time of the fundraise, SpiceJet’s 36 of the total 58 aircraft were grounded while many were repossessed by lessors.

SpiceJet’s fleet comprises Boeing 737 aircraft, including MAX 8s, and Bombardier Q-400s.

For example, the settlement with aircraft lessor Carlyle involved a write-off of $40.17 million on arrears and conversion of $30 million in arrears into equity while at the same time, allowing the airline to continue to operate an unspecified number of aircraft on a long term basis. Another settlement with Export Development Canada (EDC) also allows the airline full ownership of 13 Bombardier Q400 aircraft used for regional flying.

Of the ₹3,000 crore raised, the airline has allocated a sum of ₹1,400 crore towards clearing dues. It has earmarked ₹800 crore for ungrounding its aircraft, ₹800 crore for working capital requirements. A separate sum of ₹736 crore in a previous funding round was also utilised to address liabilities, clear a portion of outstanding dues, and support working capital needs.

The airline’s attempt at revival come at a time the global aviation industry is grappling with supply chain issues exerting pressure on availability of engines, and parts involved in the hydraulic, and pneumatic systems. These will push up the cost of maintenance contracts as well. Further, with most of Boeing’s suppliers based in the U.S., the rupee depreciation will also escalate expenses. Turnaround time for engines sent for shop visits for scheduled maintenance have also increased by 30% to 150% for various reasons, including due to more frequent maintenance as new engine technology such as those in the Leap 1B engines used for Boeing 737 MAX aircraft takes time to mature. The airline has tied up with U.S.-based engine maintenance, repair and overhaul organisation (MRO) StandardAero Inc., for restoring SpiceJet’s grounded Boeing 737-8 Max fleet.

Repairing of SpiceJet’s existing planes also comes amidst concerns that leasing additional planes may not be as easy for the airline because of its credit history. “Lessors will prefer well-funded airlines and assess SpiceJet’s risk exposure with greater scrutiny and demand 12 to 24 months of advance lease rental payments, letters of credit from the bank, among others. Moreover, the cost of leasing has gone up by 30% because leased planes are in great demand and almost drying up because of slow production of new planes,” said Alok Anand, Chairman and CEO, Acumen Aviation.