In a smart juggling of the books, beleaguered domestic airline SpiceJet has hived off its profit-making cargo business, earning it some nifty financial leeway. The hiving off of SpiceXpress into a separate company has already come into effect from April 1st, though it was shrewdly announced publicly only on Monday morning, just as the stock markets opened.
SpiceXpress reported a profit of 51 crore rupees in the first three quarters of the financial year 2023. By turning it into a separate company called SpiceXpress and Logistics Private Limited through issuing securities that are a mix of equity shares and compulsorily convertible debentures, the loss-making airline suddenly finds itself with Rs 2,555 crore rupees in the pocket, instantly strengthening its balance sheet.
SpiceJet chairman and managing director Ajay Singh said the move “is a stepping stone in our growth story, which shall unfold in the times to come.”
“The hive-off will not only enable SpiceXpress to raise cash independently, it will, significantly reduce SpiceJet’s negative net worth,” he added.
SpiceJet has had quite a chequered history since launching in 2005 by Singh, who is considered close to the present dispensation. He sold it off to the Marans of Sun group in 2010 while UPA was in power (Marans’ DMK was an alliance partner in the government), only to later buy it back in 2015 after BJP came to power when the airline teetered on the brink of collapse. Since then, Singh has been working tirelessly to keep the airline in the skies despite crises hitting the aviation scenario one after the other, from spiralling aviation fuel prices to the Covid-19 shutdown of operations to safety concerns over the Boeing 737 Max grounding many aircraft in his fleet for months on end.
During the pandemic, the airline pivoted by pushing the cargo service model in the absence of civil passengers. However, the airline had found it hard to escape the whammy it suffered during the pandemic – complaints of vendors who were unpaid as well as creditors skyrocketed, while safety concerns forced DGCA to ground 10 of its planes last year.
The present move goes a long way in providing a much-needed breather to Singh – becoming a separate company will help SpiceXpress to raise funds independently, which shouldn’t be much of an issue as it is profit-making. Meanwhile, the 2,555 crore rupees windfall will transform SpiceJet’s balance sheet into pink.
Singh hopes that this will provide the listed company with enough momentum in the markets, as well as in future cash infusion, to overcome the present problems. Already, the airline had earned brownie points last month when it managed to restructure the 100 million dollars it owed leasing company Carlyle Aviation Partners.
The government is also keen to ensure that SpiceJet survives as a functional airline and does not let India’s domestic aviation market get cartelised by two dominant players. Presently Indigo is fast muscling up its market share while the Tata group’s consolidation of its airline brands will see AirAsia India and Vistara disappear in the coming year, albeit through a merger. The authorities would only be relieved that SpiceJet remains in the market ensuring competition and healthy fares, instead of possibilities of cartelisation by two dominant players.
