One lessor moves forward with an insolvency petition against SpiceJet

SpiceJet leaked to the market this week that it has started to pay back lessors and other creditors saying that a $10 million injection by new investor Ajay Singh has been distributed among lessors threatening to repossess their aircraft. This is liberal truth at best. The reality is that ICBC and MCAP have received funds, at the time of writing it could not be confirmed if Air Lease has received funds but it is suspected that it has. However, AWAS and BBAM (as well as BOC Aviation as yet unconfirmed sources state) confirm that they have not received any funds from SpiceJet. So in effect SpiceJet has decided to pay some funds to those lessors it thinks might keep their aircraft with the airline, while completely ignoring those lessors that are demanding the rightful return of their assets. When leasing has become such a magnet for investors (rightfully so) can we really stand back and allow defaulters to refuse to hand back aircraft to asset owners and managers. Given recent history of cannibalisation of aircraft parts by another insolvent Indian airline, it can be assumed that SpiceJet could decide to use the aircraft it knows it cannot keep as parts supply for the others in service? It is a valid assumption to make and a valid concern.

SpiceJet CFO Kiran Koteshwar has stated that “as and when cash comes in, we will clear all dues of our creditors”. So is Ajay Singh throwing his fortune down a SpiceJet-branded drain? Right now, unless something changes, this could be the case as Airline Economics understands from local sources that BBAM has lodged an insolvency petition against SpiceJet to declare the airline bankrupt. This petition has been filed with the Courts for over a week and the lessor is pushing for a hearing within the next week or so.

BBAM is also in the court of appeal next week following on from its previous ruling against SpiceJet that was casually annulled by the DGCA (reported here in January 2015). In that instance the courts ruled that the DGCA must act to deregister the BBAM aircraft with SpiceJet, but in the event the DGCA just sent a casual letter to SpiceJet asking it to surrender aircraft after a considerable delay. It was as if the DGCA was/is acting in collusion with SpiceJet against creditors. Hence creditors are litigating against both the DGCA and SpiceJet.

Recent moves to implement Cape Town in India are not worth the paper that they are written on without legislation being proposed, while the DGCA refuses to take any action against indebted airlines such as SpiceJet. The DGCA is also refusing to comply with the Cape Town Treaty and this is one of the matters that the creditors are trying to deal with in court (see our report from last Friday). The DGCA has confirmed that the companies with first liens over the aircraft such as airports, fuel suppliers and maintenance providers, will all need to be paid before the lessors.

The reality:
The real question is whether SpiceJet can survive? The answer is no for the following reasons: SpiceJet is living off of cashflow; cashflow created by crazily low price ticket sale offers that has flights running at a guaranteed loss unless charges are made onboard. This has been the case for eight months now and it remains so.

The airline is paying off selected debtors, including staff salaries, to keep the Indian authorities on side through borrowing and advancements from Kalanithi Maran’s Sun Group.

Airline Economics understands from several direct contacts involved in the deal and others on the sidelines that the share sale deal to Ajay Singh included tax free advancements and borrowing lines from Kalanithi Maran and his Sun Group to get Singh going. It is this money, not money from Ajay Singh that is keeping the airline running at this time and it is this money that was supposed to tide Singh over until he could arrange credit lines. Singh was banking on JP Morgan coming to his rescue but sources confirm that JP Morgan has thought better of the deal and walked away. Singh has also been to the Indian banks with support from the government, but they have also closed their doors in his face, rightly so given they are still repossessing Kingfisher assets in court right now form their last short-sighted venture into a failing Indian airline.  We understand that only one Chinese bank was willing to give the thought of lending money at any time over the past six months and it too is backing away now.

So that leaves Singh himself and he does not have the wealth required for this adventure. So will Kalanithi Maran and his Sun Group continue to prop-up SpiceJet even though he has no ownership and nothing to gain? Stranger things have happened before and they will again, but this is at this time the only hope for SpiceJet.

So how is it that in 2015 a failing airline can effectively seize assets and continue to fly them with local regulator support? Far from matters improving post Kingfisher they seemed to be worse and the current Indian government appears complacent and happy to let the situation deteriorate. Can business leaders in India really standby and allow this sort of thing to take place without deploring the same and asking for better government oversight? This entire matter casts a shameful shadow over Indian business. This matter is fast becoming a political one in some Indian states and the fact is that if SpiceJet were to suffer some sort of major fatal incident then the regulators and politicians are going to find themselves in hot water.

The case for BBAM’s insolvency petition against the airline looks to be very solid indeed and the coming weeks will bring more news on this story that will either force SpiceJet to act responsibly or compound worries about Indian regulators.