Employee Salaries Cleared by SpiceJet Post QIP

Relief for SpiceJet Workers:

SpiceJet, a financially troubled airline, paid off all of its employees' salary arrears on Thursday after earning INR 3,000 crore through a QIP this week, according to people familiar with the issue.

"The July and August salaries of all employees, including those who hadn’t received June salaries, were disbursed last evening," said the sources.

This comes after the airline revealed that it has yet to pay around INR 220 crore in tax deducted at source (TDS) from employees' salaries between April 2020 and August 2023 to tax authorities. The airline's Qualified Institutional Placement (QIP) was oversubscribed, with 87 Indian and foreign institutions subscribing. SpiceJet is expected to receive an extra INR 736 crore from the previous investment round, on top of the INR 3,000 crore it raised through its QIP. This additional funding will further support its growth and financial stability goals.

Meanwhile, according to the latest DGCA data, SpiceJet's market share has been shrinking. In January, the airline had a market share of 5.6 percent, and since then, it has continuously fallen. In August, it dipped to 2.3 percent. The airline had a large share of 10.5 percent in 2021. SpiceJet has been facing many issues due to its inability to raise funds. The airline has been defaulting on lease rental payments, forcing aircraft lessors to move insolvency court against it.

Its operational fleet has been reduced from 74 in 2019 to 28 in 2024. 36 aircraft have been grounded on account of dues and fund issues. Higher working capital costs, escalating fixed costs, and fixed airport rentals have been weighing it down. Outstanding liabilities include nearly INR 3,700 crore due to lessors, engineering and EDC liabilities, and INR 650 crore of exceptional statutory dues.

In recent weeks, SpiceJet's troubles have mounted. Last month, the airline had to operate empty flights from Dubai as passengers could not check-in due to the airline's unpaid airport dues. A few weeks earlier, in a similar case, some SpiceJet flights in Dubai had been cancelled due to non-payment of dues, with the company citing "operational reasons" for the cancellations. At the end of August, just when the Dubai disruption happened, the DGCA put SpiceJet under enhanced surveillance. Due to the lean travel season, the airline temporarily furloughed 150 cabin crew members for three months. It also delayed paying the salaries and defaulted on its provident fund commitments.

However, before the QIP, the airline received another relief. One of its major lessors, Carlyle, agreed to convert up to USD 50 million of dues into equity. SpiceJet and Carlyle will restructure obligations at INR 100 per share of SpiceJet. The agreement allows for restructuring certain aircraft lease obligations of SpiceJet amounting to USD 137.68 million, which, upon settlement or waivers, will be adjusted to USD 97.51 million. Carlyle will also consider purchasing a stake in SpiceXpress & Logistics Private Limited, the company's cargo arm, via compulsorily convertible debentures.

By March 2025, the airline will have a fleet of 40 aircraft, equivalent to Akasa Air's size. In the following year, they plan to add another 40 aircraft. Additionally, during periods of high demand, the airline will lease additional planes in the short term, as Ajay Singh, Chairman and Managing Director of SpiceJet, stated.

For instance, it will induct eight aircraft for the festive and year-end season. “Despite shrinking in size, in FY24, there were eight airports where we had more than 50 percent of seat capacity and 40 routes where SpiceJet had a monopoly. We have 30 exclusive destinations under the regional connectivity scheme,” Singh said.