There are several problems ailing SpiceJet and the taxman knocking on its doors is just one of them

• SpiceJet is currently navigating turbulent airwaves, and it needs a liquidity boost to help it come out of its troubles.
• The airline has reportedly grounded several of its Boeing 737 aircraft over non-payment of GST dues.
• However, this could just be a tip of the iceberg, and here’s what we know so far.

Ajay Singh took over SpiceJet from Dayanidhi Maran, of Sun Group, in 2015, with some reports suggesting that he paid just ₹2 per share for his 58.5% stake, being hailed as the “turnaround man” of the Indian aviation industry. However, his airline has been facing turbulence for a while now, with the list of problems now including the taxman.

SpiceJet, one of the two listed airlines in India, has reported losses consecutively for the past six quarters, and there could be more trouble brewing for the company. The airline barely has enough cash to pay off its GST dues, reported to be up to ₹285 crore, while its cash reserves were around ₹320 crore.

This, according to a Business Standard report, has prevented SpiceJet from sending back 13 Boeing 737 aircraft to its lessors.

Due to non-payment of tax dues, the tax authorities have refused to grant a ‘no objection certificate’ to SpiceJet to give back the leased aircraft to its lessors.

What’s holding SpiceJet back from returning the aircraft?

At the core of the issue is a tax demand by the tax authorities under the Goods and Services Tax (GST) regime – the report stated that SpiceJet failed to pay GST dues worth ₹285 crore.

According to the company’s financial results as of March, 2021, SpiceJet had ₹320 crore in the form of cash and cash equivalents. The liquidity crunch seems to be an immediate and critical issue for the company. In comparison, its rival IndiGo had a balance of ₹509 crore as of March 2021, and ₹1,366 crore as of September, 2021.

The airline filed a petition in the courts to allow it to pay the dues in 10 installments, which was countered by the tax authorities stating that there is no provision in the GST Act that allows payment in instalments.

As such, the non-payment of GST dues is now preventing SpiceJet from trimming its operating costs. For an airline, lease rentals on aircrafts are one of the core operating costs.

But there’s more to SpiceJet’s troubles than just tax dues.

Lease liabilities account for ₹3 out of ₹4 of SpiceJet’s balance sheet

Lease liabilities are one of the biggest dues on SpiceJet’s balance sheet – nearly every ₹3 out of ₹4 is towards the airline’s lessors. The company’s lease liability as on March 31, 2021 was over ₹8,446.3 crore, while the total liabilities stood at ₹11,376 crore.

In comparison, its rival IndiGo’s lease liabilities stood at a close 70% in the same period.

Lease rentals balloon

As of June 2021, lease rentals accounted for over 10% of SpiceJet’s total operating costs, increasing by more than six times when compared to the same period last year.

SpiceJet’s total fleet stood at 100 at the end of March, 2021, falling from 114 a year ago. This is still a third more than the 75 aircraft it had in its fleet in 2019, though.

Analysts at Centrum Institutional Research estimate that this number will come down to 90 next year, and with it, the lease rentals should come down proportionately, too.

Delay in Boeing 737 Max settlement adding to SpiceJet’s troubles

The Boeing 737 Max safety issues resulted in SpiceJet grounding the aircraft in India from March 2019. The aircraft was grounded around the world following two fatal crashes, and SpiceJet is the only airline to use it in India.

As a result of this, SpiceJet claimed more than ₹1,200 crore in compensation from Boeing. It has yet to receive a ‘substantial’ part of this compensation, according to media reports.

Rising fuel costs another major worry

Another cause of concern for SpiceJet – among other airlines – is the increase in fuel costs. Aviation turbine fuel (ATF) prices have nearly doubled in the preceding 12 months. Given that these costs account for up to 40% of an airline’s total operating costs, this is a major cause of concern for the ailing SpiceJet.

Fundraising could help SpiceJet in the short term

Earlier this year, SpiceJet confirmed that it has received shareholder approval to raise up to ₹2,500 crore via a qualified institutional placement of eligible securities, either bonds or other instruments.

Apart from this, the airline has also received approval to hive off its cargo business to its subsidiary, SpiceXpress, which would result in a one-time gain of ₹2,500 crore.

Analysts at Prabhudas Lilladher say this could “go a long way in alleviating [its] liquidity constraints”.

Business Insider has reached out to SpiceJet for a statement and will update the story if and when we receive a response.

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