Exclusive: Spicejet will get an investor in two months

New Delhi: A day after SpiceJet announced an interline pact with Singapore Airlines’ subsidiary Tigerair, the airline’s sources told Firstpost it will be getting a strategic investor too within the next two months. This partner is expected to be another international airline, not Tigerair.

SpiceJet has been in talks with several investors over the past many months as it is severely cash starved and needs funds urgently. In the past, SpiceJet is believed to have held several rounds of discussions with Tigerair for a possible equity partnership though it has denied such talks. Other suitors include Qatar Airways but there has never been any confirmation on this either.

SpiceJet urgently needs cash. In its outlook for Indian aviation, aviation consultancy CAPA had estimated that SpiceJet needs anywhere between $200-230 million as immediate funding. Of this, $120-130 million is for future fleet commitments whereas working capital requirements as of March 2013 were between $70-100 million.

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[caption id=“attachment_1117559” align=“alignleft” width=“380”]  Spicejet[/caption]

Now that India allows up to 49% equity investment by a foreign airline, SpiceJet appears to be looking at this route seriously to get funds. But then the airline has said for many months now that it is close to a deal with a potential investor - will it fructify this time around?

Airline sources confirmed to Firstpost that the current Chief Operating Officer, Sanjiv Kapoor, will be elevated to the position of Chief Executive Officer within six months from his date of joining or by April next year. “But this is subject to a review of his performance and only if the new airline partner, which is coming in as a strategic investor, also agrees”. These sources said the new ailine partner should be announced in “two months max” and that it is another international airline, not Tigerair.

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One thing is clear from this: if the CEO will be appointed with the permission of the new partner, the partner will obviously have a say in management of the airline and therefore it may be looking to acquire the maximum permissible equity stake of 49% in SpiceJet. The sources also said that the appointment of a Chief Commercial Officer is also nearing as the selection process has reached the final round. The new CCO and CEO will have the unenviable task of together improving the financial position of the airline which has been facing mounting cost challenges and funding crunch. Its networth was fully eroded as of March 2013 and auditors have already expressed apprehensions over its “going concern” basis. Rashesh Shah and Darpan Thakkar of ICICISecurities have said in a note to clients last month that the airline’s networth is negative Rs 603 crore as on September 30 and its loan liability is over Rs 1700 crore. SpiceJet posted its highest ever quarterly loss in September at Rs 559 crore.

This is why the top management appointments hold significance. The predecessors who occupied these two positions (CEO and CCO) had left in disgust earlier this year, alleging mismanagement by people handpicked by SpiceJet promoters who had little experience of running an airline and were interfering with these professionals. Sources Firstpost spoke to earlier had said exits of CEO and CCO were precipitated by a flawed decision making process where the CEO was often bypassed. In July, SpiceJet lost both CEO Neil Mills and CCO Harish Moideen Kutty. As of now, Senior VP (Commercial) V Raja is the acting CCO.

Then, the sources quoted earlier also said Tigerair will not become an investor in SpiceJet, despite signing the interline agreement and it is another international airline with which talks are at an advanced stage. Coming to the interline agreement that SpiceJet and Tigerair announced yesterday, it is a smart strategy. Such an agreement refers to a pact to issue and accept tickets for flights that are operated by the two airlines. It is different from a codeshare since here, the operating airline’s own flight numbers are used for tickets. Like Firstpost said yesterday, an interline pact is a smart move because it allows extensive benefits to flyers of both airlines while also posing a big worry for competitors like IndiGo and AirAsia India.

But if, Qatar or any other Gulf carrier decides to make an equity investment in SpiceJet, how will it work with a South East Asian airline like Tigerair - airlines from these two geographies have been traditional rivals.