New Delhi: After reporting a fifth consecutive quarterly loss, SpiceJet Ltd’s hopes to raise funds to the tune of ₹2,500 crore will be crucial for the airline to navigate the challenges faced by the pandemic-hit aviation sector and ensure its long-term sustainability, industry experts said.
SpiceJet has approved a fundraise through the issue of eligible securities to qualified institutional buyers and if this happens through fresh equity, the shareholding of the current promoter will fall from 60% to 40%, ICICI Securities said in a research note on Thursday.
Risks that could delay the airline’s recovery include rising crude prices, covid-related disruptions, delay in recapitalization, and rising costs related to pending litigations and vendor renegotiations, the research note said.
SpiceJet has so far claimed about ₹1,100 crore as compensation from Boeing Co. for the grounding of 737Max aircraft but it is yet to receive a large part of the amount from the US aerospace major. Delay in payment from Boeing, or receiving less than the estimated payment could further hurt the airline’s financials, the research note by ICICI Securities added.
On Wednesday, auditors of SpiceJet Ltd, Walker Chandiok & Co LLP, raised doubts about the company’s ability to continue as a going concern as the no-frills airline’s mounting losses have resulted in a complete erosion of the airline’s net worth with its current liabilities exceeding its current assets by ₹5,185.84 crore.
For the year ending on 31 March 2021 (FY21), SpiceJet reported a consolidated net loss of ₹1,029.89 crore, up from ₹936.57 crore loss during the previous year. Revenue during FY21 fell 54% on an annual basis to ₹6,119.39 crore.
For FY21, SpiceJet reported a consolidated net loss of ₹1,029.89 crore, up from ₹936.57 crore loss during the previous year. Revenue during the fiscal year fell 54% on an annual basis to ₹6,119.39 crore.
SpiceJet promoters could pledge their shares to raise capital, restructure bank debt or opt for a repeat public offering (RPO), said Nripendra Singh, global director for Aviation Research at Frost & Sullivan.
“Post-covid, every airline in India is in bad shape financially. Raising capital through their brand image is one of the easiest options a listed airline can exercise during times of need,” Singh said.
“Aviation is in the transition phase of recovery which may last till the last quarter (of 2021) after which the situation is expected to evolve at a much better pace in the first quarter of 2022. Pent-up demand in 2022 would be the biggest driver for faster recovery in the near-term. Sustainable operations in the current year will lay the foundation of re-inventing the revenue cycles in 2022,” Singh added.
However, Indian airlines are likely to register a consolidated loss of about $4.1 billion during FY22, taking combined losses over FY21 and FY22 to about $8 billion, according to latest estimates from aviation consultancy firm Capa. This will add to the pressure faced by many airline operators who are already struggling to recover from two consecutive years of losses.
As a result, airlines need close to $5 billion of recapitalization during FY22 just to survive, Capa added.
Hiving off the cargo arm into a separate company is a smart move from SpiceJet’s promoters, as it is profitable and more money can be raised from this business to maintain liquidity, said a senior airline official, who has been on the management team of top Indian airlines.
“SpiceJet promoters will however be hoping for a quick turnaround in demand and that a third wave, like the second wave of covid-19, doesn’t surface in future,” the official said requesting anonymity.
When contacted, a SpiceJet spokesperson said that fundraising measures, as announced by the company, will be decided in the due course of time.
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