Govt to Ajay Singh: Rs 1,200 cr investment is fine, but tell us how SpiceJet can be run now

New Delhi - Where’s the money, honey? That, in essence, is what the Ministry of Civil Aviation has told SpiceJet’s ex-promoter Ajay Singh. Singh has been leading a consortium of investors who want to rescue the low-cost carrier. Sources close to Singh say he is in talks with two foreign PE investors for raising about $200 million but any deal will happen only by next month. Sometime next week, Singh is expected to present a detailed investment plan to the aviation regulator DGCA. But SpiceJet needs cash for daily operations - it needs to pay oil companies daily to buy fuel, its dues to airport operators are mounting and other payments like lease rentals on aircraft etc are also due. The question that senior ministry officials put to SpiceJet and Singh yesterday is the same old one: until the big investment comes in, how do they plan to run the airline in the interim? A source who was privy to yesterday’s meeting in which SpiceJet management, Singh and a raft of ministry top brass was present, says the airline has sought deferment of payment of service tax dues and also wants payments to oil companies be deferred by a month. It was payment of tax arrears (service tax and income tax) in November which actually lead to the present crisis at SpiceJet as it fell short of cash even for daily operations. [caption id=“attachment_2018185” align=“alignleft” width=“300”]  it is now almost clear that the the Maran family may have decided to completely exit the airline. AFP[/caption] Oil companies have in the past made it clear that unless SpiceJet pays each time it lifts fuel, it will not be given any fuel. The Airports Authority of India, to which the airline owes well over Rs 200 crore in dues, has also been waiting for these to be cleared. Earlier, ministry officials had set December 31 as deadline for at least some money coming into the airline by potential investors so that some dues are cleared. Now, there are doubts over whether this deadline will be met. An official in the ministry said whether the AAI will put SpiceJet on cash and carry after Wednesday will be decided soon. Cash and carry would mean each time a SpiceJet flight wants to take off from an AAI airport, it has to first pay the airport charges. Separately, a source close to Singh denied there was any a December 31 deadline given them for bringing in a part of the proposed investment. They say talks are on and the entire deal will likely be stitched by mid-January. Another source close to negotiations with potential investors said there could be an immediate investment of up to Rs 500 crore by Singh and his consortium. As SpiceJet lurches into another liquidity crisis, it is clear that the promoters - the Maran family - may have decided to completely exit the airline. The second source quoted above said Singh and his team want to run the airline with their choice of management, making it clear that some sort of a management rejig is also imminent. This source pointed out that in its present form, the airline is “top heavy” with some people in the top management drawing unacceptably high salaries. “Whenever there is a change in ownership, there has to be a change in management,” this source said without elaborating. He said Singh wants to get back to the airline he exited some years back because he sees immense potential in the Indian aviation industry. Besides, SpiceJet has airport slots, aircraft and all the paraphernalia for running an airline and investing in it would be cheaper than starting an airline from scratch. This source said there is no decision yet on whether to phase out the Q400 fleet of smaller Bombardier aircraft (SpiceJet also flies Boeing 737s). “May or may not be phased out. With the Q400s, what works is significantly less cost of operation compared to the Boeing fleet and the ease of operation in tier II and smaller cities. One can charge the same amount as a Boeing seat so the differential between cost and revenue works in favour of retaining this fleet. But then, maintenance costs rise and this needs to be also considered.” This source said SpiceJet is at present operating 18 Boeing aircraft as three others are grounded due to maintenance issues. To sum it all up, SpiceJet may get investment but perhaps needs some sort of a bridge fund till the big investment comes in. There has been some talk of the airline wanting to raise funds through the external commercial borrowing route - but the Ministry has merely proposed easier ECB norms, these have not been implemented yet. Singh and his partners need to pump in some money by next week or convince the ministry of civil aviation that they have an iron clad investment plan.