Before this QIP of Rs 3000 crore in December 2023 also you did a fund raise of about Rs 2250 odd crore via private placement. So, post this, would the company need any additional fund raise or will this be the last round of fund raises that we have seen from you?
Ajay Singh: See, for the moment, there is not going to be any further fund raise. I think this is much more than sufficient for SpiceJet’s current growth plan. And actually, when we started this round of fund raise, we intended to raise about 2000 crores. But we found that the appetite for the fund raise was significantly higher than what we were seeking to get. And since we had a shareholder approval for 3000 crores, we decided to raise 3000 crores. Had we needed to we could have actually raised a significantly higher amount. But we think that this amount is sufficient to fund SpiceJet’s expansion plan, which is to go from the current level of 25, 27, 28 aircraft to in excess of 100 aircraft in two years.
The earlier fund raise was supposed to be used for your debt repayment and to add new planes. However, no new planes have been added. So, does this mean that the fund raise will be completely toward funding losses? Will you be looking at working capital needs as well? What is the outlook on debt repayment?
Ajay Singh: No, well, in the last round of fundraising, we actually raised only 1000 crores and not 2250. A large part of that went into settlements, paying statutory dues, and some towards fleet development. But in this round of funding, our focus really is on the growth of our fleet, the growth of our network, and the expansion of our revenue base. So that is what we are focusing on. As you know, SpiceJet was already a 100 aircraft airline in 2019, so the company has all the infrastructure and the wherewithal for a 100 aircraft airline. And we believe that since SpiceJet has all the airports, the slots, the traffic rights, the maintenance infrastructure, the pilots and the crew and the management that has brought about a turnaround in 2015, we feel that we are in a very strong position to do that again. SpiceJet also has about 30 aircraft that are on the ground and that can be with the deployment of some capital, repaired and put back into service quite rapidly and double SpiceJet’s existing operation. So, we think that we are in a very strong position to do that.
At this time, the aviation market is strong. The growth is great, the yields are strong. There are other tailwinds like the oil price being low. And SpiceJet has the experience of having done this in 2015. So, we feel that this is an ideal time to try and replicate our success of 2015, especially in a market where the capital markets are also strong and willing to trust us to fund this revival story of SpiceJet.
So, post this round of fund raise, by how much will your debt and liability is reduce and what will be the interest cost savings?
Ajay Singh: Well, this is a significant cleanup of the balance sheet. And our expectation is that we will be pretty much debt-free after that. The only loan that will remain is the ECLGS facility that we got from the government during COVID. So, significant deleveraging of the balance sheet. And we hope that we will make all our payments like statutory payments, employee dues, as well as settlements with less odds, etc. So, the objective of this issue is growth of the network, addition to the fleet, and a cleanup of the balance sheet in a very-very significant way.
And you plan to use the funds to unground the 36 grounded aircraft. So, how quickly can they be operationalised?
Ajay Singh: So, we have about 30 aircraft on the ground. We expect to get them all back by the end of next year, of course, in batches, so that is the timeline, that all the 30 aircraft should be recovered by the end of 2025 and added to the fleet.
You also plan to induct new aircraft. Firstly, how many have you planned to induct? And secondly, how are you planning to deal with the bigger problem that is unavailability of aircraft?
Ajay Singh: So, we are planning to induct about 75 aircraft over the next two, two-and-a-half years. And out of that, 30 aircraft are already with us, that is a significant strength because like you said, in a market that is constrained on the supply side, the fact that SpiceJet already has 30 aircraft and all the infrastructure that is required to run those 30 aircraft is a significant strength at this point of time. In addition to the 30 aircraft, we intend to get about 40 to 45 aircraft from the secondary market over the next two to three years and we believe that with the capital raise now, we are in a very strong position to do that.
And for the new aircraft order, you will be needing some support from lessors. However, after you failed to pay the leases and after you asked for the haircut in their dues, do you think you will find a set of lessors who will be ready to support you? And even if you do, do not you think that they will be now asking for a significantly higher finance cost to cover for the risk given that there has been weak credit quality in the past?
Ajay Singh: I think you need to understand that the lessor dues are really a consequence of two black swan events. The grounding of the MAX aircraft in 2019 and COVID which hit us in 2020. And what happened in those black swan events is that the aircraft were actually sitting on the ground, not flying, not generating revenue, but accumulating lease rental. So, this is where the liabilities have really come from. And just as in 2015, we are going to find amicable settlements with all our lessor partners and ensure that we pay them, we settle, we pay and we move forward. This is exactly what happened in 2015 when significant amounts were due to lessors.
We paid, we found settlements with all the lessors, we paid them, all those lessors came back and did significant business with SpiceJet again and I am sure that we can replicate that. I think lessors understand that the problems and the liabilities were created for no particular fault of the airline. These were events which were completely unexpected, the grounding of the MAX aircraft as well as COVID. And the fact that SpiceJet decided not to shut shop, which would have led to complete loss for the lessors and instead find its way forward again by refinancing, recapitalizing itself and moving forward, I think that is great credit to the airline. And the lessors understand it and are happy to do business in a growing market all over again once we find settlements with them. We have already found settlements with some of our largest lessors and I think there are a few that are left and those settlements will be arrived at very soon as well.
As per the document filed by your company, lessors have claimed around Rs 2100 crores, but you are utilising only about 750 crores of the QIP proceeds for payment to lessors. What have been the talks with them?
Ajay Singh: Well, we have already settled with some of our largest lessors, so that actually has been done and we are looking to settle with others. In some cases, we are also providing in addition to cash some equity to them. So, we have a great deal of confidence in being able to achieve the settlement numbers that we have provided because they are based on contracts in many cases that have already been executed.
And even if you are able to revive the business, how do you think that you will actually be able to bring air traffic back? It seems like consumers now have very little trust. They are facing significant challenges. I would imagine that you would now because there has been poor product quality in the past. So, is there some sort of strategy that you guys have in mind that this is what you are going to do to bring traffic back, especially, you have got other airlines now that are offering significantly better products, the pricing is looking competitive as well. So, what is the game plan here?
Ajay Singh: We have experience of doing this. In 2015, when we took over this airline, we were in a position where trust was severely eroded. And people would come to us and say, look, I will never fly this airline again because of cancellations and delays that we encountered during the holiday season, etc. But within three months of that takeover, we took over the airline in 2015 in February, by April, we were at 88% load factor. By May, we were actually at 93% load factor. And since that May of 2015 and till the May of 2024, SpiceJet’s load factor never went below 90% in any month of any year at all. So, we know that we can fix this problem.
As I said, we have for several years had the best on-time performance of all airlines in the country. With funding available, you will see that performance, operations, on-time performance will be fixed very-very quickly. And as you start fixing that performance, people start to come back. Leisure travel, which is SpiceJet’s niche, also travel to tier II, tier III towns, people actually come back very quickly once there is word of mouth that the airline is reliable again. So, we are very confident that it will take not a very long time at all for trust to be restored.
Your cargo business has been demerged. Any plans of listing or fundraising for the same and how has the performance been?
Ajay Singh: I think SpiceXpress is quite unique. As you know, we started this cargo operation and built it up quite significantly during COVID. We have slump sold the cargo business into a new company called SpiceXpress and we think that there is a terrific opportunity for that company to grow and prosper on its own. And certainly, we will be looking to raise resources for SpiceXpress. The company is fully owned by SpiceJet. And at some point, we will certainly look to list SpiceXpress.