SpiceJet to ground 3 engines; banks on new fundraising to stay afloat

In a major blow to SpiceJet, the Delhi High Court has ordered the airline to ground three engines by August 16, 2024 due to default on lease rents to two France-based lessors -- Team France 01 SAS and Sunbird France 02 SAS -- within next 15 days. 

Further to the notice, the court has also ordered the airline to make arrangement for the lessors to inspect their engines.

In the previous hearing on August 12, 2024 the lessors had rejected SpiceJet’s managing director Ajay Singh’s offer to pledge his shares as collaterals against the outstanding liabilities for engines. 

Meanwhile, the grounding of three engines is bound to severely disrupt SpiceJet's revenue and operations. 

In order to raise more funds, SpiceJet has announced to raise INR 3000 crore through QIP (qualified institutional placement) by September 30, 2024. The airline plans to settle the outstanding lessor dues of INR 4.9 crores from the equity proceeds. 

In spite of airline’s desperate attempts to hold on to the engines, the lessors have rejected to carry-on business with the airlines. Legal documents have revealed that team France 01 SAS and Sunbird France 02 SAS filed their case against SpiceJet in December 2023 over unpaid dues worth $20 million. 

Meanwhile, media reports suggests that Singh is planning to reduce his 10% stake in the airline and raise funds worth Rs 3000 crore. Singh will still remain the largest shareholder in the company even though his holding might decline to 30 to 35% after the proposed fundraising.

With this the airline plans to expand its capital base by issuing fresh shares to investors. The airline has claimed that this fresh infusion of funds will help in fleet expansion, enhancing operations and settling its liabilities. 

ICICI Securities and JM Financial will be managing the airline’s the fundraising process. SpiceJet consolidated net profit declined 19.9% to INR 158.1 crore in Q1 (First Quarter) of FY 2025 on a year-on-year basis due to lower revenue as compared to the same time last year when the airline had posted an Rs 197.6 crore profit.

All-in-all it is a no-brainer that SpiceJet is in dire need of funds to keep its operations afloat, the airline has yet to pay the July 2024 salaries of some of its staff. 

To top it all, three of its running engines will now be grounded impacting its daily operations. The airline has repeatedly defaulted on payments to vendors and lessors. Now the latest fundraising round is a ray of hope for the airline heading into troubled skies.