Aviation Ministry Seeks SpiceJet bailout

Published By : 17 Dec 2014 | Published By : QYRESEARCH

Civil Aviation Minister, Ashok Gajapati Raju has requested several public sector banks to sanction loans to SpiceJet, the sinking airline awaiting its last straw. However, there seems no economic, political, or a humanitarian logic to this request by the government. He has asked for an amount of INR 600 crore, which will be given on the basis of assurances from the promoters. The oil companies too are being asked to grant the airline a credit of 15 days for fuel bills.

To add to the chaos and woes of SpiceJet, the ministry has overturned Director General of Civil Aviation (DGCA) order that initially barred the airline from offering bookings to its customers 30 days in advance. The ban was implemented as SpiceJet nurtured a habit of using long-term ticket sales to fund its short-term needs. This made the management of airline extremely callous and casual, eventually leading it to the current situation.

For now, the ministry’s logic states that the bailout will help the airline come out of the crisis and prevent SpiceJet from shutting down, thus preventing a major blow to the Indian civil aviation sector. However, questions such as management’s prior knowledge of the situation and what’s holding the Marans back from saving its business hang heavy in the air. 

The Indian civil aviation sector has suffered majorly at the hands of government’s wayward policies and poor promotions that brought down the ticket pricing but in effect hampered the cash flows. From the looks of it, saving SpiceJet is not going to save the aviation sector, as that leaves the question of why not Kingfisher then, unanswered.

Ministry’s request to bail out SpiceJet will further pressurize the banks who are already reeling under the pressure of bad loans. Prima facie, SpiceJet’s problem is not raising money or cash, as its owners, Maran’s worth is around INR 10,000 crore in the current stock market. Thus, raising money is a matter of time. The problem with SpiceJet is clearly its owners who are running a perfect business model with absolute imperfection.
Back To Top