SpiceJet board approves raising fresh capital

SpiceJet, the Delhi-based cash-strapped airline, approved raising over Rs 22.5 billion (approximately $270 million) by issuing equity to financial institutions, FII, HNIs, and private investors. In a statement after a board meeting concluded here, the airline said that the fresh funds were “aimed at fortifying the airline’s financial strength and accelerating its growth trajectory.” The investors to whom it is proposed to issue equity shares and warrants include Elara India Opportunities Fund, Aries Opportunities Fund, Mahapatra Universal Limited, Nexus Global Fund, Prabhudas Lilladher, and the Resonance Opportunities Fund. This is the second tranche of funds that the airline will receive this year. In July, the airline’s promoter Ajay Singh infused Rs 5,000 million (approximately $61 million) into SpiceJet. The airline claimed that in the quarter ending September 30 this year, it had received Rs 2 billion of the Rs 5 billion of the planned and phased infusion of fresh capital by the promoters. SpiceJet claimed that in the same quarter, debt-to-equity conversion was done with Carlyle Aviation Partners by allotment of over 48.1 million equity shares for Rs 48 per share, leading to a debt reduction of over Rs 2 billion. Besides, it claimed it had settled with aircraft lessor Castle Lake without knowing how many aircraft or the settlement's financial implications. It also claimed that it was successful in repaying and closing a Rs 1 billion loan from an Indian bank. The news of the fresh fund induction comes even as the airline reported a net loss of Rs 4.28 billion in the second quarter of fiscal 2024 as against a net loss of Rs 8.35 billion during the same quarter in fiscal year 2023. Continued challenges Commenting on the results, Satyendra Pandey, managing partner at AT-TV, said that the airline’s results speak of continued challenges at the company. “The Q2 loss of approx $51 million came at a time when a competitor was grounded, and the quantum of the loss is a bit higher than AT-TV estimates,” he said. Pandey thinks the company's financial position remains fragile, evidenced by delays in Tax Deducted at Source, delays in the deposit of Provident Fund, auditors' note of material uncertainty, and payment deferrals - all disclosed by the company in the financial filings. “The Earning Before Interest, Taxes, Depreciation, and Amortization or EBITDA loss is concerning because it speaks of operational challenges and not only financing challenges. The fleet is significantly reduced, and this has consequent impacts on the ability to soak up valuable infrastructure and deploy capacity in a market where demand is soaring,” Pandey added. AT-TV estimates that SpiceJet is operating a fleet of approx. 26 - 31 aircraft is a significant variance from the planned capacity (as derived from filed Directorate General of Civil Aviation schedules). “While some alternate capacity measures have been implemented, such as the wet leases via Corendon airlines, this capacity comes at a cost, and that cost must be covered by adequate revenues, which has not been the case in Q2,” he said, adding that the capital raise is a welcome step because it is urgently required. The stock price appreciation indicates how the market views the capital raise. “However, as with any capital raise, till the funds are remitted, the on-ground reality remains the same,” Pandey cautioned. Freezing order The airline has been facing the heat for some time now. On December 8 this year, the airline stated that the Dubai International Financial Centre (DIFC) Court on 30 October 2023 issued a freezing order (Order) about specific engines installed on aircraft bearing the Indian registration mark VT-SLM. Due to the Order above, the plane was grounded at the Al Maktoum International Airport, Dubai (DWC), and has remained there since. In a DIFC Court hearing on 7 Dec 2023, the Order was discharged in favor of SpiceJet. Additionally, the Judge directed an inquiry into losses suffered by SpiceJet as a result of the Order. It added that summarily, no Order of the DIFC Court restricted SpiceJet from operating the aircraft, including departing from DWC.

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