Azernews.Az

By Bloomberg

SpiceJet Ltd., the struggling Indian budget airline, had to ground its fleet this morning after oil companies rebuffed a government request for fuel on credit, a person familiar with the situation said. Shares dropped.

No planes are operating now, a company official said, asking not to be identified, citing rules. Indian oil producers are still considering an aviation ministry proposal last night to give fuel to the airline, the airline official said. SpiceJet spokeswoman Sudipta Das declined to comment.

The civil aviation ministry is in talks with oil companies about fueling SpiceJet planes, and has asked state-run banks and oil companies to protect “stakeholder interest,” junior aviation minister Mahesh Sharma told reporters in New Delhi today.

India’s government said late yesterday banks may be asked to lend as much as 6 billion rupees ($94 million) to billionaire Kalanithi Maran’s carrier, as the indebted carrier seeks investment over the next two months to keep flying. State oil companies will be asked to provide SpiceJet with as much as 15 days worth of credit and airport operators will offer a 15-day payment window, the Civil Aviation Ministry said yesterday.

Maran will guarantee the loans and repay as soon as an investment is secured, part of a package of steps to prevent a shutdown that would damage India’s airline industry, the government said in New Delhi yesterday. It arranged a credit line for fuel for SpiceJet and eased booking curbs imposed after the carrier canceled flights and missed salary payments.

Shares Tumble

The airline’s shares slumped as much as 8.3 percent after gaining as much as 7.6 percent earlier today. The stock rose Dec. 16 after the government said the carrier could taking bookings up to March 31. The Directorate General of Civil Aviation earlier had barred SpiceJet from accepting bookings for travel more than a month ahead.

The measures buy the budget airline “breathing time” and don’t count as a bailout, Chief Operating Officer Sanjiv Kapoor said by phone.

Base fares as low as 2 U.S. cents and jet fuel costs inflated by taxes have stoked more than $10 billion in aviation losses in the last seven years in India, where liquor baron Vijay Mallya’s Kingfisher Airlines Ltd. was grounded in 2012 after accumulating $1.4 billion of debt.

Fuel Credit

“SpiceJet, and Kingfisher before that, illustrate the seemingly perennial problems in Indian aviation,” said Robert Mann, president of aviation consultant R.W. Mann & Co. in New York. He cited “fragmentation, excess capacity, irrational pricing, and unrealistic expectations for uneconomic growth associated with unfordable aggressive fleet plans.”

Access to overseas borrowing for working capital will be eased, it said, adding SpiceJet needs about eight weeks to “consummate” long-term investment.

“Without significant and immediate promoter funding, I see no future,” said CAPA Centre for Aviation’s South Asia Chief Executive Officer Kapil Kaul.

A financial proposal the carrier submitted to the government in a meeting two days ago didn’t provide new information regarding new investors or funds, an official at the DGCA told reporters in New Delhi, asking not to be identified citing departmental rules.

Maran’s Investment

Media billionaire Maran and his company KAL Airways Pvt. together own more than 58 percent of SpiceJet, according to data compiled by Bloomberg. He spent 7.4 billion rupees buying a stake from Wilbur Ross in 2010 at 47.25 rupees per share and has invested a further 5.6 billion rupees, SpiceJet has said.

SpiceJet, based near New Delhi, is the second-biggest budget carrier in India after IndiGo and has reported five straight quarterly losses. It has tried for more than two years to woo an external investor and has cut its fleet of Boeing Co. planes as part of a survival strategy.

Despite airlines’ struggle to make money in India, the growth potential has convinced Singapore Airlines Ltd. and AirAsia Bhd. to start operations in India. Domestic travelers are projected to triple to 159 million by 2021.

The government is under pressure to keep SpiceJet flying as another grounding after Kingfisher would cause lessors and other suppliers to India’s aviation industry to demand tougher contract terms for higher risk, said Mark D. Martin, chief executive officer of Dubai-based Martin Consulting LLC.

“SpiceJet clearly has run out of time,” he said.