UPDATED (28/8/22) - What's happening with SpiceJet (& the Indian airline industry)?
Picture: Nisarg Vyas (GFDL 1.2, via Wikimedia Commons)
Updated (as of 28/8/22) - It seems that SpiceJet won’t be windup after all (not for now at least!). Ch-Aviation reports that the Indian low cost airline has sorted its issues with Credit Suisse, which threatened the continuity of the business. The overall situation remains fragile, though, and SpiceJet is looking for fresh capital to carry on.
I don’t claim to be an expert in the Indian airline industry, although this is a market (and a country!) that truly fascinates me and I try to keep an eye on
Quite a lot has happened, not just in India, since 2019, when I wrote this piece for CNN “Inside India's aviation revolution and what it means for travelers”). Now, one headline that I stumbled upon a few days ago really caught my attention “Madras High Court orders winding up of SpiceJet over outstanding dues”. What??
SpiceJet is no small fish in the dynamic Indian air travel market…the LCC operates over 100 aircraft and has nearly 200 more on order, most of them Boeing 737 MAX-8. So, the airline being wind-up would represent a major shake-up of the airline landscape, that as we will soon discuss, is up for major changes soon anyway!
At the root of this issue is apparently a $24M debt dispute with Credit Suisse. SpiceJet has appealed to India’s Supreme Court and subsequently, on 28 Jan, been given 3 more weeks to find a solution. This is about two weeks from now and, surprisingly, I’ve seen little info in the media about this potentially major corporate shake-down. Again, I am not well versed in the details of Indian airlines finances, let alone in Indian corporate law (any well informed additional info is welcome!) and it could well be that the figures involved in this case are relatively manageable in the big scheme of things (SpiceJet’s revenue was slightly over $810M in the not-yet-normal 2021 fiscal year), but why then play with fire and wait all the way to a Supreme Court ultimatum?
SpiceJet has been badly hit by the pandemic and has also been affected by the Boeing 737 MAX grounding (although considering the general drop in air mobility these last two years and the fact it has received a compensation from Boeing, perhaps this latter issue hasn’t contributed too much to the current predicament). In fact, and despite having successfully developed its air cargo business, which currently brings in about a third of the revenue, in 2021 it had a loss before extraordinary items of about $133M.
In addition to that, some large investors, Blackrock among them, recently voiced concerns about several accounting and governance issues.
SpiceJet’s largest investor, Ajay Singh, claims to know how to get SpiceJet out of the red (he already turned around the airline after acquiring it in 2015), but all these nuggets of information that are trickling out, including reports about low staff morale, do not sound not very encouraging.
Regardless of how this story ends, it looks like India will remain an extremely competitive market for the foreseeable future.
The acquisition of Air India by the Tata Sons conglomerate, a very powerful family-owned group with a long tradition of business success, may get India’s flag carrier back in the game. Although it is not clear yet whether this may lead, in the medium term at least, to a realignment of the different airlines and brands controlled by Tata, which include low cost carrier Air Asia India and full service carrier Vistara . It seems that all three brands will coexist, for now at least, but not clear whether there is going to be some degree of coordination.
Then there is the imminent launch of Akasa, a new startup airline with a billionaire owner and ambitious plans (it has 72 Boeing 737 MAX on order), and the return of Jet Airways, under new ownership.
Let’s not forget as well, that the other incumbent airlines, particularly in the low cost segment, have also growth plans, with Indigo, for example, waiting to receive nearly 550 new aircraft, most of them of the A320/A321 family!
A big bet on the idea that air traffic will be recovering soon to pre-covid levels in India, although some analysts are pushing this date to as far in the future as 2024!