SpiceJet Fails to Lure Investor as Debt Mounts: Corporate India

SpiceJet Ltd. (SJET), the Indian budget carrier headed for its third straight annual loss, said it sees little chance of luring investment soon amid elevated debt and intensifying competition.

Although the airline’s owners have injected more than 5 billion rupees ($83 million) in equity in recent quarters, that “has not been adequate” to reduce the carrier’s dependence on debt, S.L. Narayanan, the chief financial officer of SpiceJet’s parent Sun Group, said in an e-mail interview.

“While the market in India certainly looks attractive, the weak operating environment is unlikely to excite any strategic investor in a hurry,” Narayanan said. “Our focus has shifted to making the most of what we have and ride out the storm.”

The carrier, majority owned by billionaire Kalanithi Maran, has fallen behind on dues to airports, restructured aircraft deliveries and faces increased competition from the entry of AirAsia India Ltd. Kingfisher Airlines Ltd., owned by liquor baron Vijay Mallya, ceased operations more than a year ago after amassing debt and defaulting on payments to airports, lenders and oil companies.

To revive itself, SpiceJet has stopped flying to some “unviable” destinations and improved service quality and punctuality, Narayanan said. All overdue fees owed to the Airports Authority of India for costs such as landing and parking charges will be settled “sooner than later,” he said.

Photographer: Dhiraj Singh/Bloomberg

A SpiceJet Ltd. aircraft flies over a bus as it prepares to land at Chhatrapati Shivaji International Airport in Mumbai. The carrier, majority owned by billionaire Kalanithi Maran, has fallen behind on dues to airports, restructured aircraft deliveries and faces increased competition from the entry of AirAsia India Ltd. Close

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A SpiceJet Ltd. aircraft flies over a bus as it prepares to land at Chhatrapati Shivaji International Airport in Mumbai. The carrier, majority owned by billionaire Kalanithi Maran, has fallen behind on dues to airports, restructured aircraft deliveries and faces increased competition from the entry of AirAsia India Ltd.

‘Highly Leveraged’

SpiceJet’s long-term debt to capital ratio is 91 percent, exceeded in Asia only by state-run Pakistan International Airlines Corp., according to data compiled by Bloomberg.

Narayanan said the “highly leveraged capital structure is simply the outcome of losses” and “has wiped out the net worth of SpiceJet.”

SpiceJet, based in Gurgaon, near New Delhi, is India’s fourth-largest domestic airline by market share. Privately-owned IndiGo, also a budget carrier, is No. 1. Jet Airways (India) Ltd. (JETIN) is the second-largest.

Shares of SpiceJet have slid 49 percent in Mumbai trading in the past year, compared with a 19 percent gain in the S&P BSE Sensex Index. (SENSEX) The stock today rose 3.4 percent to 13.77 rupees at 3:23 p.m. after India’s central bank yesterday extended a window for airlines to borrow abroad to March 31, 2015.

“SpiceJet is treading on really thin ice,” said Mark D. Martin, chief executive officer of Dubai-based Martin Consulting LLC, which advises airlines on strategy. “There is a similar trend to what happened with Kingfisher Airlines.”

Photographer: Dhiraj Singh/Bloomberg

A visitor walks past an advertisement for SpiceJet Ltd. at the India Aviation 2014 air show. SpiceJet, based in Gurgaon, near New Delhi, is India’s third-largest domestic airline by market share. Close

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A visitor walks past an advertisement for SpiceJet Ltd. at the India Aviation 2014 air show. SpiceJet, based in Gurgaon, near New Delhi, is India’s third-largest domestic airline by market share.

‘Several Adversities’

Maran’s 75 percent stake in Sun TV Network Ltd. combined with his 24.2 percent ownership of SpiceJet are valued at about $2 billion, according to data compiled by Bloomberg. Maran’s KAL Airways Ltd. holds another 29.2 percent in SpiceJet.

Maran’s office said he wasn’t available for an interview.

SpiceJet may post a loss of almost 9 billion rupees in the fiscal year ending March 31, according to the average of four analysts’ estimates compiled by Bloomberg.

“SpiceJet is estimated to require close to $200 million to remain operationally viable while a realistic and meaningful turnaround may require $300 million or more,” according to a report in January by Sydney-based consultancy CAPA Center for Aviation. “In the meantime the promoter’s continued infusion of funds has been of great support to the airline.”

Narayanan said he can’t comment on CAPA’s views. A search for a strategic investor is a “work in progress,” he said.

AirAsia, Singapore Air

India’s entire airline sector is “in the grip of several adversities,” Narayanan said, citing overcapacity, lack of pricing power and more competition on the way. The fiscal year that ends March 31 “will go down as the worst year for the Indian aviation industry,” he said.

Local carriers may have lost as much as $250 million in the final quarter of calendar 2013, according to CAPA. Provincial taxes of as high as 30 percent in India make jet fuel the most expensive in the region.

AirAsia Bhd (AIRA), Asia’s biggest budget carrier, and Singapore Airlines Ltd. (SIA) each have tied up with India’s Tata Group to operate new carriers in the country. Both are awaiting regulatory approval to start services.

Jet’s shares have declined 57 percent in the past year, more than those of SpiceJet. Jet hasn’t posted an annual profit in five years, according to data compiled by Bloomberg.

Still, Jet does have a foreign stakeholder. Abu Dhabi-based Etihad Airways PJSC bought a 24 percent stake in the carrier last year for 20.6 billion rupees as it seeks to build the sheikhdom into an intercontinental transfer hub.

Overdue Payments

SpiceJet had arrears of 1.03 billion rupees to the Airports Authority of India, AAI Chairman Alok Sinha said in a March 18 interview. The company is paying 10 million rupees every day through post-dated checks so that the outstanding amount comes below the company’s bank guarantee of about 560 million rupees, Sinha said.

SpiceJet is confident of settling all overdue amounts to the AAI, Narayanan said.

“SpiceJet is in a serious cash crunch, and there is an urgent need to inject money,” said Harsh Vardhan, chairman of New Delhi-based Starair Consulting.

The company on March 12 ordered 42 Boeing 737 Max planes valued at about $4.4 billion. As part of the deal, it swapped a previous order for 12 Boeing 737 NG for newer 737 Max planes. Max deliveries will start in 2018. Most payments for the latest order will happen closer to the delivery date, Narayanan said at the time.

“We are indeed going through a tough situation, though our outlook is promising to be a lot better,” Narayanan said. “We are hopeful that SpiceJet will soon start making decent margins and turn viable.”

Asked whether he is concerned SpiceJet risks becoming the next Kingfisher in the absence of a strategic investor, Narayanan replied: “Only time will tell who is right.”

To contact the reporter on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Dick Schumacher, Sunil Jagtiani

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