SpiceJet's woes mount: AAI tells airline to put cash upfront for using airports

After delaying the salary of its employees by a few days, embattled budget airline SpiceJet’s woes just got worse with India’s airport authority puttingthe airline on cash and carry mode at airports with thecarrier required to pay upfront for the use of facilities.

The move is considered a bad sign because airlines normally use the airports on creditandthe Airports Authority of India (AAI) evokescash and carry mode only when anairline is unable to clear its dues or its dues rise unacceptably high.

A Times of India report said that it had been done in light of the airline’srising dues with AAI. The exact figure of the airline’s dues weren’t available.

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The finance chief of the AAI ordered the airports to receive payments only in cash or demand draft from commercial banks before giving permission for take-off of SpiceJet flights from airports, reported DNA.

For SpiceJet , it couldn’t have come at a worse time as it has been forced to cancel flights due to a shortage of aircraft and is in urgent need of a capital infusion to stay afloat.

However, as this Livemint report points out being put on cash and carry mode doesn’t necessarily mean that the airlineis sinking because it has been in a similar situation before and others like Jet Airways have also been told to pay upfront for use of the airports.

As Firstbiz had reported earlier SpiceJethas been talking to potential investors for funds infusion and till a new investor arrives its fleet shrinkage and daily cancellations may only increase.

Against about 40 daily flight cancellations that the airline had admitted to in mid-November, the number has risen to almost 70 a day. At its peak, the airline was operating 345 daily flights this summer but now that number is down to 275, according to sources.

Sources had told Firstbiz that SpiceJet is planning to shut down operations to Indore, Varanasi, Aurangabad, Surat, Mysore, Trivandrum, Sharjah, Kathmandu and Kabul.

According to estimates by global aviation consultancy CAPA, SpiceJet needs Rs 1,000 crore immediately for working capital and other needs and at least another Rs 500 crore to sustain operations. The shortage in short term capital resulted in the airline delaying the payment of salaries to employees for the first time ever but the airline chief has promised that it was a one-off incident.

The airline’s statements on good financial health were slightly vindicated when famous investor Rakesh Jhunjhunwala picked a stake in the airline. But as Firstbiz pointed out earlier, it isn't a sign that the airline won’t end up going the Kingfisher Airlines way.

The airport regulator’s move will only increase the doubts about the airline’s future and given its already flagging reputation after the outrage over cancellations, its flash sales may not be able to bail it out in the future.