Legal Setback Adds Pressure on SpiceJet

SpiceJet's Legal Woes Continue to Pile Up

Two engine lessors suing SpiceJet over unpaid leases have rejected managing director and promoter Ajay Singh's offer to pledge personal shares valued at USD 2.5 million toward the discharge of the airline's liabilities. This comes after the Delhi High Court declared last week that it would only grant an extension of the payment deadline in exchange for personal commitments from SpiceJet's directors.

The carrier has been sued by Team France 01 SAS and Sunbird France 02 SAS, two engine leasing particular purpose vehicles under the ownership of ST Engineering, for lease arrears on three engines that go back several years. The lessors informed the court last year that SpiceJet owed USD12.9 million at the time and had not paid its bills for two years. They also requested a restraining order from the court to stop the airline from using the engines. Since then, SpiceJet has ignored multiple payment orders that have been issued, and the subject has been brought before the courts numerous times. The LCC is still using the engines.

SpiceJet's lawyer, Sandeep Sethi, told the court on August 8 that if the engines were pulled out of service, it would negatively impact the airline's operations, revenue, and ability to raise finance. He requested an extension of the payment deadline and submitted an affidavit detailing a revised payment plan to the court. He said that his client had high hopes for paying the total amount before the month's end. However, Judge Manmeet Pritam Singh Arora said that he would only cooperate if the directors provided personal assurances.

“This company does not have money,” India's Business Today outlet reported the judge as saying. “You’ve been repeatedly giving undertakings to the court. If you’re not able to pay, you should ground these engines. If the company alone is liable and it has no money, then perhaps your directors should provide personal guarantees. Otherwise, it seems the directors have no faith in the money coming in."

Sethi informed the judge that he would want his client's instructions regarding SpiceJet's directors' willingness to offer personal guarantees and the specifics of the assets that would back up those guarantees. Ajay Singh, the managing director, is joined on the board by Manoj Kumar, Anurag Bhargava, Shiwani Singh, and Ajay Chhotelal Aggarwal.

"We Want Our Engines Back"

When Sethi returned to court on August 12, he offered Singh his unencumbered shares. He warned that the court might compel their immediate release if SpiceJet did not pay its obligations by September 30, 2024. Nevertheless, the lessors' attorney, Raj Shekar Rao, declined the offer. According to a report by the Economic Times, he informed the judge that his client was unwilling to purchase shares in a firm "whose existence is shaky."

"The pledge is not acceptable," Rao added. "We have given them a long leash. We want our engines back. We have been asking for disclosure of Singh’s assets since January. We can give them 15 days to return our three engines. They can take off the engines from the aircraft in a day, and we can inspect the engines to clarify their health." 

The case will be back in court on August 14. The legal actions, one of SpiceJet's challenges, put more strain on the beleaguered airline. It barely missed having to cancel its flights into and out of Mumbai International this week due to an unpaid airport fee, which it referred to as a "minor financial matter." For the same reason, several flights to and from Dubai International were recently cancelled.

Additionally, according to The Economic Times, SpiceJet texted a few of its staff members to inform them that their June salary payments would be postponed because of "pressing operational, financial commitments". Virendra Malhotra, vice president of flight operations, signed an email dated August 8 indicating that the airline planned to make the payments "shortly" and was looking for bridging capital to help stabilize cash flow. "Meanwhile, we at flight ops appreciate your support and patience and look forward to your unwavering cooperation," the message continues.

SpiceJet has a history of defaulting on provident fund obligations and paying salaries beyond the deadline. The company reports that 95% of its employees received their June salary on schedule, and the remaining portion will be paid in the coming days.

The SpiceJet board authorized a capital raise of 30 billion rupees (USD 357 million) towards qualifying institutional buyers through an institutional placement late last month. This happened after the board approved a plan in January to fund about INR 22.5 billion (USD268 million), of which approximately INR 10.6 billion (USD 126 million) has already been raised.