Two aspects of Singh’s management strategy bother many. One, SpiceJet has forayed into many non-aviation businesses — seaplanes, merchandise shops, cabin crew training, Covid testing to vaccinations (SpiceHealth), besides cargo charter. This, many feel, is treading on thin ice as in “a low-margin business as aviation, distraction can mean disaster.” “I often look at SpiceJet today and — it certainly isn’t just an airline”, says a long-time employee. He says it is not clear who invested in the airline when Singh took over the reins from Maran. In reports then, a few possible investor names were publicized, including JP Morgan Chase and Morgan Stanley, but it is not clear if anyone invested at all.
Like many hands-on chiefs, Singh is accused of failing to delegate adequately, or building a second line of command. Industry questions the effectiveness of the airline’s board of directors. In the absence of a strong board and strong second line of command, Singh tends to micromanage. “The airline needs to bring in a CEO, CCO and other similar positions to decentralise running,” argues Lumba.
The Golden Goose
It’s not all doom and gloom for the 16-year-old carrier since Singh has acted strategically through this phase. He realised earlier than others that if people couldn’t move in the pandemic, goods will have to. Cargo revenue for the airline shot up to $350 million from $45 million in pre-pandemic times. The cargo business is being hived off into a separate entity under SpiceXpress. Singh expects this to be valued at a multiple of four. So even as his core business may have dropped in valuation he created “a new asset worth many times more”. It will have its own board, management team and a staff of 1,100, which includes those seconded from SpiceJet. “I have created an asset which is significantly more in value than the losses incurred”, says Singh, arguing the pandemic has not been as bad for him as many think.
SpiceJet’s revenues in Q2 FY22 stood at ₹1,539 crore, of which SpiceXpress accounted for almost a third at ₹497 crore. This is emerging as the airline’s golden goose.
The move to hive off and transfer the logistics business could result in a one-time gain of ₹2,556 crore for SpiceJet, which could wipe out its substantial negative net worth. The plan is to issue shares in the new entity of which SpiceJet will own 2.55 crore shares of `10 each. Of this, 10% of total shares — at $1.5 billion valuation — will be offered to lessors of the Boeing 737-800NGs to settle dues amounting to around $150 million. In other words, the existing creditors will be given a stake (25 crore shares) in the new entity that amounts to dues owed to them. This whole plan according to Singh will be in place in the coming quarter or so. This will help clean up dues to a large extent.
That takes care of one half of what SpiceJet owes. Another $150 million owed to Max lessors will be settled with the help of aircraft manufacturer Boeing. Since Max was grounded globally, Boeing is stepping in to help settle dues of customers who were stuck with grounded airplanes till the MAX problems were resolved by the company. Between the two, Singh claims the airline will emerge with a much cleaner balance sheet.
As the company settles with creditors, the `2,300-crore book losses will come down, which will be reflected in results of the coming quarter. Further relief is coming through the settlement reached with Boeing, which agreed to offer cash and kind compensation, amounting to $200 million. Two old B777 aircraft were also included, both of which the airline plans to use for cargo operations.
Very early in the pandemic, SpiceJet began to aggressively renegotiate contracts with vendors, including lessors, to hammer out the best deals. This led to a saving of almost ₹600 crore in the first year itself. Overall, ₹1,100 crore has been saved by the airline on this alone.
Singh argues SpiceJet may appear battered today, but has a reasonably rosy future. “As we add the MAX, we will be back to original schedules quite soon.” Already, 11 of the grounded MAX are flying but the airline is yet to start taking deliveries of the new MAX aircraft from its order. In 2022, they argue the airline will get aircraft at a fairly quick pace. Some will be new while others will replace existing and inefficient engines. “Over time the entire SpiceJet fleet will be built around the MAX and the Q400s which we fly on regional routes, making it far more cost-effective as MAX is more fuel efficient than its predecessor”, adds Singh. In the next 12-15 months, all old Boeing planes will be replaced by MAX.
Observers say two other factors worked in the airline’s favour. One is Singh’s “come hell and high water” attitude, which pushes him to find an opportunity in adversity. Two, is his ability to retain peace of mind and maintain a calm temperament even as hell breaks loose around him.