SpiceJet insolvency row: DGCA's early warnings reveal brewing trouble

In the nine-month period ending on December 31, 2022, SpiceJet recorded a significant loss of Rs 1,514 crore. As of December 31, its net worth stood at a negative Rs 5,801 crore.

As the insolvency issue of SpiceJet heats up, prior red-flagging to the company by the Directorate General of Civil Aviation (DGCA) had pointed out long awaited trouble for the aviation giant. Last year itself the DGCA had warned the airline after noticing various anomalies regarding its service.

"Financial assessment carried out by DGCA revealed SpiceJet is operating on cash and carry and suppliers/approved vendors are not being paid on regular basis leading to the shortage of spares and frequent invoking of minimum equipment list (MEL)... it was deduced SpiceJet failed to establish a safe, efficient and reliable air transport service," as per a 2022 order.

The aviation watchdog had also put some restrictions on the airline.

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"In view of findings of various spot checks, inspections and the reply to the show cause notice for continued sustenance of safe and reliable air transport service, the number of departures of SpiceJet are hereby restricted to 50% of the number of departures approved under summer schedule of eight weeks from (July 27, 2022). Any increase in the number of departures beyond 50% of the number of departures approved under summer schedule 2022, during this period, shall be subject to the airline demonstrating to the satisfaction of DGCA that it has sufficient technical support and financial resource to safely and efficiently undertake such enhanced capacity," the order issued by DGCA joint DG Maneesh Kumar had said.

In the nine-month period ending on December 31, 2022, the company recorded a significant loss of Rs 1,514 crore. As of December 31, its net worth stood at a negative Rs 5,801 crore.

However, the low cost airline has categorically stated that it has no plans whatsoever to file for insolvency.

"We want to scotch any speculation that may have arisen due to the filing by another airline. The airline is firmly focussed on its business and remains in active talks with investors to raise funds," the airline said.

SpiceJet is facing bankruptcy proceedings as Ireland-based aircraft lessor Aircastle Ltd has moved the principal bench of the NCLT to launch a bankruptcy process against the airline.

Amid insolvency, it has also announced that the airline has also initiated the process of reviving its grounded fleet with the $50 million received by the airline from the government`s Emergency Credit Line Guarantee Scheme (ECLGS) and internal cash accruals.

According to SpiceJet Chairman and Managing Director, Ajay Singh, there is absolutely no question of filing for insolvency.

"Any rumour regarding the same is completely baseless. We are focused firmly on reviving our grounded fleet and getting more and more planes back into the air. Work on this front has already begun and the company is using the $50 million ECLGS funds and our own cash," he said.

"We have a great relationship with all our partners. Our lessors have supported us through the thick and thin and continue to do so and we are grateful for their support and confidence."

SpiceJet had earlier announced plans to revive 25 grounded aircraft that will help it capitalise and make the most of the upcoming peak travel season.

Agreeing to hear the lessor`s plea, a two-member bench of the NCLT issued a notice to the airline. The bench, headed by NCLT president Ramalingam Sudhakar, directed SpiceJet to attend the hearing on the next date.

Claiming default in dues payment, Aircastle has sought initiation of corporate insolvency proceedings against SpiceJet.

A spokesperson for SpiceJet had commented that the notice was issued routinely in connection with the Aircastle matter.

"In the Aircastle issue, notice was issued in normal course. There was no adverse ruling against SpiceJet. The court has recognised the fact that parties are under settlement discussions and they can continue to pursue the same," the spokesperson had said.

SpiceJet`s financial challenges have gained significant attention, with the company`s auditor repeatedly expressing concerns regarding its ability to sustain operations due to substantial liabilities.

Within the domestic market, SpiceJet currently holds a 6.9 per cent share, indicating its position among other airlines.

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