SpiceJet under more stress with charges of unpaid service tax, threat of engineering audit

Monday saw SpiceJet making headlines throughout the day. In the morning, Firstbiz wrote about it becoming the second largest domestic airline by passengers in June but by the evening, the story had several twists.

First, news came about aviation regulator DGCA asking the airline to refund full fare to passengers of one of its flights which was delayed by close to 5 hours. In an unprecedented order, the regulator also asked SpiceJet to refund all the money (Rs 15,000) it had charged the passengers to sell them food after the delay when rules require it to offer refreshments for delays beyond two hours for free.

But the painstaking details which DGCA went into before taking the airline to task about that one delayed flight had other ramifications: The regulator spoke to several engineers, flights attendants and pilots of SpiceJet in the course of its investigations. And DGCA sources told Firstbiz that the cabin crew appeared “clueless” about what needs to be done when a flight is delayed or when takeoff is aborted and passengers need to be taken care of after returning to the ground. These sources also claimed that engineers spoke of irregular aircraft maintenance which lead to an aborted takeoff of this particular flight.

More from Corporate

Maha: Court orders Rs 30L compensation for parents after youth dies in road accident Ashleigh Barty comes from set down to beat Coco Gauff in Australian Open lead-up

The DGCA sources said there may be an engineering audit of the airline shortly. The regulator has already begun a financial audit of all airlines where it says it requires more details from each and has written to them again after receiving information initially. It is not clear if these engineering audits will be restricted to SpiceJet or if they form part of the comprehensive financial audit already being conducted on each airline.

In the past, there have been allegations of stripping of parts by SpiceJet where it has allegedly stripped grounded aircraft of parts and used these on other aircraft to save on maintenance and procurement costs.

But a SpiceJet spokesperson denied any engineering irregularity, saying “No truth at all to the sensationalist reports that had appeared earlier in the media about the alleged ‘stripping’ of parts from supposedly grounded aircraft; that article was unfortunate. All of our aircraft, other than 2 that are in regularly scheduled C-checks (one Boeing, one Q400) and one Q400 that is undergoing maintenance after a bird hit, are fully airworthy, operational and flying in daily service. We, like other airlines, are subject to regular and ongoing audits by DGCA from time to time and we are fully compliant with every safety regulation.”

Allegations over engineering issues are not the only one troubling SpiceJet though. Industry sources told Firstbiz that the airline may have defaulted on its service tax dues of Rs 300-400 crore as well. This is the amoung collected from passengers as part of the ticket price and must be deposited with the Service Tax department. These sources said a team from the Service Tax Department had raided SpiceJet’s offices in Gurgaon last week. But the airline’s spokesperson said “we are answerable only to the appropriate statutory authorities.”

A story this morning in the Times of India spoke of SpiceJet failing to provide TDS certificates and Form 16 to its employees though the last date for filing tax returns is just two days away. The story linked its situation to Kingfisher Airlines, which also went through similar troubles before it was grounded and still owes crores to lenders and employees. The SpiceJet spokesperson neither confirmed nor denied these allegations on TDS, merely saying, “These matters are privileged and cannot be discussed under the glare of media. We are well aware of our obligations under the applicable law but we are answerable only to the appropriate statutory authorities.”

SpiceJet reported a record loss for FY14 as costs rose unabated and yields (revenue per passenger) could not keep up. It has seen healthy passenger growth in the June quarter but whether that will translate into a reduction in losses remains to be seen.