Floundering SpiceJet gets AI treatment

After seeing many airlines collapse in the absence of a comprehensive US-like Bankruptcy Protection law in the country, the government, for the first time, seems to be intervening in a systematic manner to save the floundering budget carrier SpiceJet Ltd.

At least, it seems to have made a beginning in the same way with the ministry of civil aviation announcing on Tuesday steps it would be taking “to keep SpiceJet from shutting down”, and for the larger good of the aviation sector.

The ministry said the airline has to give commitment of increasing sufficient appropriate capital within a short period of time. At the same time, it would ask the state-owned oil firms and airport operators to give credit of up to 15 days. With a daily jet fuel off-take of SpiceJet at about Rs 5 crore, it would be Rs 75 crore. According to the ministry, the airline’s pending dues was only Rs 14 crore as on December 15.

“Indian banks may be requested to give some working capital loan based on the assurances of the promoter,” the statement of the ministry said.

It has estimated banks or financial institutions could lend up to Rs 600 crore backed on a personal guarantee from the SpiceJet chairman Kalanithi Maran, with a rider that it would be paid immediately after securing the long-term investment, which is expected take around eight weeks.

To help the airlines tackle its working capital crunch, the finance ministry would be requested to allow “External Commercial Borrowing (ECB) for working capital as special dispensation as was done in the 2012 when a similar crisis had arisen in the aviation sector”.

Lastly, ministry would request the directorate general of civil aviation (DGCA) to open up the bookings of SpiceJet up to March 31.

Sanjiv Kapoor, SpiceJet COO, said the airline had yet to receive the DGCA notice. “It (DGCA directive) usually comes to us a few hours after going to the media.”

the DGCA order means a major reprieve for the cash starved no-frill carrier in getting the much needed capital to pay off vendor dues, employee salaries and adequately meet its operational costs.

The government’s intervention will also keep creditors – Airports Authority of India (AAI), oil marketing companies (OMCs), banks and lenders, aircraft lessors and others – at bay for the time being.

These actions taken by the government is a lot like what the US government would have done had a company filed for Bankruptcy Protection under the famous Chapter 11. 

Captain G R Gopinath, pioneer of low fare aviation in the country, said; “In the absence of the bankruptcy court, the ministry of civil aviation can act as a good will ambassador and bring the vendors and banks face to face with the promoters and management to make an attempt to reason out and act prudently so that the company recovers.”

He said there should be a bid to work on a plan to bolster future earnings and equity of the troubled company so that creditors can be paid from it.

“(This way) liquidation can be avoided and jobs saved and customers and the country will stand to benefit,” said the aviator.

According to him, if SpiceJet or the wound-up Kingfisher Airlines would have been in the US, they would have filed for Bankruptcy Protection under Chapter 11.

Once this would have been done, the bankruptcy court would have given them breathing time to recover and find investors and fresh equity while passing an order, which would be binding, that all creditors and vendors should lay their hands off the beleaguered company.

This, he said, would have been done subject to the airline owners and management coming up with a viable plan along with credible restructuring and genuine sacrifice. “The company management and its performance would also be under the strict oversight of the bankruptcy courts during this period when a lease of life is offered. And the banks and vendors would also have to make a sacrifice and take a haircut,” said Capt Gopinath.