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Deviation From Low-cost Flights Led To SpiceJet Collapse: Ajay Singh

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Ajay Singh, the man who had co-founded and last year rescued a collapsing Spicejet, is on a roll. He claims to have cleared all debts of the company in just three months since his takeover in December last year. Speaking to BW |Businessworld's Monica Behura, Singh says that the company is undergoing a corporate restructuring. Clearing off debts, a leaner management, expansion of fleets and hiring back people who left during the Maran times is right on his agenda.
 
What brought you back into SpiceJet?

It was both an emotional and rational decision but most importantly it was the national perspective that convinced me to join SpiceJet. With fewer players, brands are visible and any airline failure such as a shutdown gives a bad name to country’s aviation industry.
 
Did it make any business sense for you to take on the ailing SpiceJet?

Macro economic climate like low oil prices helps growth. With Modi government in power, I was convinced of a higher economic growth trajectory which is bound to have a ripple effect on all sectors including aviation. There is a growth potential to help that one per cent of population that flies in planes and its number is bound to grow.
 
Before joining SpiceJet, were you privy to the book of accounts? How different was it from the time you founded it in terms of financers, reserves, management?
 
It was only in December, after the commencement of dialogue that I looked into the matter. I was given a 30 day interim period and in between that I saw the books.  It was a big hit for me. When I left the company in 2011 it was making profit, it had reserves but  when I joined back, its balance sheet had accumulated huge losses. Its liability had surpassed its assets and financial condition was not healthy.
 
What led the company to such a financial crisis? What was harming it the most?
 
Deviation from low-cost flights which made the company grow was one of the main reasons. Shift from focuses such as trying to reduce the cost of operation was lost.  The moment I stepped in I opened stations which were disproportionate to the number of planes we had, and we also opened low-cost flights with exciting deals.
 
Why do you think the Marans failed and what was the failure cost of the airline?
 
Firstly, I think the airline deviated from its principles of trying to reduce cost on a regular basis. You have to keep knocking down costs which I didn't think was the focus under the Maran leadership. Secondly, in terms of revenue, there was a lot of dilution of revenues by having promotions which were not designed as well as it should have. Thirdly, I think they went more for spread, in terms of opening up of large number of operations as opposed to having higher frequency. Fourthly, the airline was functioning under an absentee leadership because the Marans were not physically present here. I think airline being a very competetive space, you can’t afford a hands off deal. It is a combination of factors that led to the failure.
 
With almost six months in office, how does the balance sheet of Spicejet look like now?
 
Ever since I joined I’ve cleared all the statutory debts and every single rupee of bad debt, all employee salaries are up to date and oil companies are paid. The company has turned upside down since its inception in 2005, the company was based on the premise that it will not take credit rather discount from the oil companies, but Maran had sought credit from the PSB’s. Right now we are on a recovery zone and it is always tough to recover after a shutdown.
 
Given your connections , did you receive any government help?
 
Nobody wanted another Kingfisher, nor the government, the stakeholders, investors, or the aviation industry. Kingfisher and Deccan Airlines were irresponsible. They got a lot of money as debt which was much higher than their revenues and ultimately consequences are known by everyone. Air India too incurs losses but it is written off by government expenses. It creates an imbalance, there has to be a coherence of policies and this government is aware of it. Yes, we did the civil aviation ministry for advice and they supported us morally which was important. As for oil companies, we asked for discount which was provided to us.
 
There were certain allegations regarding transparency in the acquisition. How would you justify it?
 
I would like to clear that we acted as per SEBI law who duly protected the small investors with this acquisition just because some people (referring to Subramanium Swamy) are not happy with the law the way it is then the law should be changed.
 
Where have you raised the Rs 550 crore from that you’ve invested till now? What is the investment required for turning around SJ? Where is going to come from? Any more investors coming aboard?
 
This money has come from a mix of investors and banks. We are getting a lot of funding offers from various players like private equity, debt providers, hybrid products and even foreign airlines. We will choose the mode of investment that comes at the lowest cost. If any further dilution of stake is needed, that will be done at better valuation. Our improved performance will reflect in our stock price. We would need another Rs 500 crore for complete revival of the company.
 
What about the Rs 1500 crore that was talked about?
 
Yes, it was because initially we didn’t knew the amount to clear the liability. From some portion of the fund and by the cash flow, liability was paid off. At present our cash flow is strong. From December no flights have been cancelled.
 
Has the operation increased or has it come down?
 
190 flights per day from December has been increased to 230 today. My first order in business was to bring stability in operation. We have started operating in airports like Jabalpur, Dehradun, Amritsar but our basic remains same, higher frequency in few stations.
 
So now, can it be said that SpiceJet has cleared all its debt and recovered from the financial burden?
 
Yes, we have cleared all the debts by the intrusion of money we brought in and paid some by cash flow. Big vendors such as Lessors t has been paid off fully.
 
Besides cost-cutting what are the business plans for revival – we hear of SpiceJet leading a low-fare war, which gives cash flow, but is debilitating in the long run. Also, major effort for ‘on-time’ and operational efficiency. Anything else?
 
 It is completely wrong. Promotional sales are a part and parcel of low cost airlines world over. They enable people, who have never flown before, to take to the skies. However, they should not be indiscriminate and revenue-dilutive. We have achieved high load and yield factor in months of Feb, March and April. We will continue to look at reducing costs ways to increase our revenue through our launch of products like SpiceJet Assurance service among others.
 
What about your contract with bombardier? What are your plans for fleet increase?
 
We are renegotiating our 20-25 contracts with Bombadiers to bring the cost back in line,” asserts Singh who is looking order a large number of aircrafts by October.
 
Reports are that top management body is leaving SpiceJet? What would you like to say in this matter?
 
Yes, the CCO and head of HR have left the company reasons which I cannot disclose. We are having some structural changes at the top level which you will know in near future. Right now our core team consists of very experience people.
 
Given that Vistara and Air Asia have steeped in the market, how you feel things have changed in the last five years?
 
As of now they are small players. There is a scope for growth for everyone.
 
Talking about development of airports by government’s PPP programme, what is your view?
 
Government should invite tender for raising the infrastructure of airports.  Company which agrees to the work with minimum amount should be given the charge. Smaller airport development is very necessary for the development of aviation industry.
 
What is the revival scheme based on?

Simple, stick to the basics.


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