Why SpiceJet Share Price is Falling

Warren Buffett, one of the most successful investors of all time, has historically been cautious about investing in the aviation industry.

In fact, he famously stated in Berkshire Hathaway's 2007 shareholder letter that investing in airlines has been a "death trap" for investors.

And he's not wrong.

When it comes to aviation stocks, there are several factors that could make them unattractive from an investment standpoint.

The aviation industry is highly cyclical and sensitive to economic conditions and fuel prices. It's also capital intensive as airlines often require substantial investments in aircraft, maintenance, and infrastructure.

This can lead to high levels of debt and interest expenses which can negatively impact profitability and financial stability.

The Indian aviation industry is no exception to this, having time and again been impacted by these issues. The stocks of companies in the sector have also suffered as a result.

One such aviation stock that is currently in a downward spiral is SpiceJet.

The company's shares are down by more than 18% in the last month and more than 30% in 2023.

Let's find out why the company's shares are falling.

Arbitration case goes awry

On 2 June 2023, the Delhi High Court ordered SpiceJet to pay Rs 3.8 bn to the airline's former promoter Kalanithi Maran in an interest payment case between KAL Airways and the company.

The ruling came after the airline failed to pay Rs 750 m to Maran as directed by the Supreme Court of India.

On its part, SpiceJet says it has paid up the principal amount of Rs 5.8 bn to Maran. However, interest payment is still pending.

In February 2015, Maran and KAL Airways, his investment vehicle, transferred their 58.46% in SpiceJet to Ajay Singh, the current Chairman and Managing Director (CMD).

Singh, a co-founder of SpiceJet, took on the airline's liabilities of around Rs 15 bn.

As part of the agreement, Maran and KAL Airways said they paid SpiceJet Rs 6.8 bn for issuing warrants and preference shares.

However, Maran alleged that the warrants and preference shares were not allotted and initiated arbitration proceedings against SpiceJet and Ajay Singh.

Finally, in February 2023, SC disposed of the case directing that SpiceJet's Rs 2.7 bn bank guarantee be encashed and asking the airline to pay Rs 750 m towards interest within three months. Maran's lawyers further alleged that the company owed Rs 3.8 bn towards interest payment.

History of non-payment of dues

This is not the first time the company has been guilty of non-payment of dues.

In April 2023, Credit Suisse, a Swiss bank, initiated contempt of court against SpiceJet in the Supreme Court after its failure to comply with a court-approved settlement plan for the payment of dues.

SpiceJet and Credit Suisse entered into a settlement agreement in May 2022 to resolve a payment dispute that arose from SpiceJet's non-payment of dues to SR Technics, a Switzerland-based company that provides aircraft maintenance services.

SpiceJet had defaulted on dues amounting to US$ 20 m.

Three aircraft lessors also took SpiceJet to the insolvency court in 2023 for non-payment of dues. The lessors, Aircastle Ireland Ltd, Willis Lease Corporation, and Acres Buildwell Pvt Ltd filed petitions asking the tribunal to admit SpiceJet to the insolvency process so that they could recover their dues.

Aircastle has alleged that SpiceJet has not paid dues of over Rs 400 m and has also told the National Company Law Tribunal (NCLT) that settlement talks have fallen through.

Willis and Acres are yet to make detailed submissions in court.

No plans to file for bankruptcy

SpiceJet said it has no plans to file for bankruptcy in a bid to assuage business partners even as lessors are pushing the airline to clear their dues on fears that it might follow the path of Go First.

Ajay Singh, chairman and managing director of SpiceJet, also said the airline has started the process of reviving its grounded fleet by using the US$ 50 m ECLGS (Emergency Credit Line Guarantee Scheme) funds and its own cash.

The airline has defaulted on lease rental payments and has been in negotiations with lessors for two years now to restructure them.

How SpiceJet shares have performed recently

SpiceJet shares have fallen by more than 18% in the last month. Over the past six months, the company's shares have declined by more than 30%. The stock is also down more than 30% in 2023.

SpiceJet touched its 52-week high of Rs 52.4 on 3 August 2022 while it touched a 52-week low of Rs 22.7 on 23 May 2023.

About Spicejet

SpiceJet is an Indian budget airline headquartered in Gurgaon, Haryana. It is the second largest airline in India by number of domestic passengers carried, with a market share of 5.8% as of April 2023.

The airline operates 630 daily flights to 64 destinations, including 54 Indian and 15 international destinations from its bases at Delhi and Hyderabad.

The origins of SpiceJet can be tracked back to March 1984 when the company was established by Indian industrialist S. K. Modi to provide private air taxi services.

In 2004, the company was acquired by Ajay Singh and the airline planned to restart operations as SpiceJet.

SpiceJet has now moved away from the typical low-cost carrier service model of economy class-only seating.

The airline offers premium services under the name SpiceMax, whereby passengers can obtain additional benefits including pre-assigned seats with extra legroom; meals on board; priority check-in and boarding; and priority baggage handling; at a higher fare.

To know more about the company, check out SpiceJet's fact sheet and quarterly results.

You can also compare SpiceJet with its peers on our website.

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