In December 2022, financially-beleaguered no-frills carrier SpiceJet was ordered to wind up its operations by the Madras High Court. Along with it, the Madras High Court asked the official liquidator to take over the low-cost airline's assets, in a case related to non-payment of unpaid dues of $24 million to Credit Suisse AG, on the grounds of the proven inability of the Airlines to repay its debts.
The Gurugram-based SpiceJet has been making losses for a long time now. The airline last reported a full-year profit in the financial year ended March 2018, when crude oil was priced at about $66. The net worth of the airline, in the meanwhile, has eroded, and the airline lost Rs 561 crores just in the period April-September 2021.
SpiceJet received an undisclosed settlement from Boeing related to the grounding of Boeing’s 737 MAX Aircraft in the SpiceJet fleet. SpiceJet had booked compensation to the tune of Rs 1,231 crore in its financials as other revenues during the financial year 2019-20 and 2020-21, as its own assessment of how much Boeing owed them. These claims will now have to be unwound as Boeing has settled, and the 737 MAX of SpiceJet have now resumed service. It is unclear as to how much of the amount will be reversed as Q3FY22 results of the airline have not been reported yet.
SpiceJet’s legal troubles
SpiceJet has had to settle with lessors of the airline, such as CDB Aviation and Avolon to be able to resume the utilisation of the 737 MAX aircraft. In December 2021, the airline also had to settle a long-running dispute with turboprop OEM, De Havilland Aircraft of Canada on account of the payment towards the delivery of the Dash 400 aircraft, of which SpiceJet is an operator.
The airline still has a dispute ongoing with KAL Airways and Kalanithi Maran, from whom Ajay Singh purchased SpiceJet against a token amount.
Spicejet vs Credit Suisse
The Indian carrier had recently concluded a 10-year maintenance partnership with SR Technics, which began in November 2011. SR Technics provided SpiceJet with maintenance, repair, and overhaul services. SpiceJet availed the services of SR Technics in Switzerland for aircraft maintenance and repair, among other related services.
In 2012, a supplemental agreement was signed between the two parties that enabled the airlines to pay back the monies raised by SR Technics on various occasions through a deferred payment scheme. The same year, Credit Suisse AG was assigned all the rights to receive payments due to SR Technics through a financial agreement. The assignment also entitled Credit Suisse to receive payments from SpiceJet under seven invoices issued by SR Technics. All the invoices date back to 2013.
The Madras HC had rejected SpiceJet’s stand that SR Technics did not have a valid license to carry out aircraft maintenance services from India's Director General of Civil Aviation (DGCA) as required under the Aircraft Act and, therefore, the enforcement of the claim would be against public policy. This was because SpiceJet knowingly entered a contract with SR Technics despite this aspect. These contentions raised by the airline were rejected during the arbitration proceedings in the UK as well, added Mr Rahul Balaji, the counsel for Credit Suisse AG.
While passing the order, Justice R Subramanian, kept his order in abeyance for three weeks, if SpiceJet is able to deposit $5 million within two weeks. In a filing to stock exchanges made in December 2021, SpiceJet maintained that it will soon initiate “appropriate remedial steps including preferring an appeal” against the order before a higher bench “within the time frame allowed by the Madras High Court.”
SpiceJet challenges in the Supreme Court
The Supreme Court (SC) of India, in the meantime, agreed to hear an appeal filed by SpiceJet against the Madras High Court order to wind up the company for non-payment of $24 million to Credit Suisse after the carrier pleaded urgency in the court.
At the hearing on January 28, the Chief Justice of India maintained that they could declare the airline insolvent, before granting SpiceJet a stay of 3 weeks on the Madras High Court order to wind up the airline. SpiceJet pleaded in the SC that they were going to make an offer.
It remains to be seen what counter offer SpiceJet makes, as the finances of the airline are in bad shape, and with high fuel prices and the third wave of COVID-19, traffic has dried up, making it almost impossible for the airline industry to make money.
(Ajay Awtaney writes about Indian aviation on livefromalounge.com and tweets from @LiveFromALounge)
