Turbulent skies

December 22, 2014 12:34 am | Updated November 16, 2021 04:49 pm IST

There cannot be a happier kind of resolution to the > tribulations of the low-cost airline SpiceJet , than for it to come up for sale and be taken over by one of its co-founders. It is still too early to say whether Ajay Singh and his group of investors will actually take control of the airline, even as the major stakeholder, the Sun group and Kalanithi Maran, are ready to sell their stake. For now, the airline has got a 15-day, Rs.600-crore lifeline from the Government of India and a deal may well be worked out. Over the past few months the airline has been facing a serious financial crisis, even giving rise to the question whether it will also go under like Kingfisher. It has not been able to pay salaries on time, pay the oil companies for fuel, or the airports for landing and other facilities. Several flights have been cancelled each day, while some passengers have complained that fares have not been refunded. And many cost-conscious flyers had booked tickets much in advance. Last week, the airline was virtually grounded, before the Centre extended a lifeline much to the chagrin of the banks and oil companies that had extended credit and were now being asked to throw good money after bad. The oil companies are insisting on a cash-and-carry arrangement. While nobody wants the airline to sink, it was a regular commercial loss that the airline had to deal with. The basic question that arises is this — should the government use its influence over banks and their resources to bail out a sick airline after the experience of Kingfisher, which remains grounded since 2012? That is why a sale of the airline may well be the best solution.

For all this, SpiceJet shares held market attention for a while when investor Rakesh Jhunjhunwala bought 7.5 million shares in late-November. But on December 5, the stocks began a downward slide when the airline was barred from selling advance tickets beyond a month. It is estimated that SpiceJet needs nearly Rs.2,000 crore to recover and stabilise its operations. Its managers have taken the line that even the major promoter, the Sun group, cannot find enough resources to pump in right now. If Mr. Ajay Singh and the other investors can pump in fresh capital and assure the oil companies and airport administrators of stability in the medium term, it could be a win-win formula. In the present competitive environment, running a low-cost airline remains a major challenge. It is now the peak tourist season and fuel costs have dropped significantly; no airline can afford to miss the business opportunity. Because of the SpiceJet crisis, the other airlines have marked up their fares substantially over the past week to cash in on the holiday season demand, but reports of the airline being up for sale have moderated the rising trend.

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