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If the EoI is accepted, SpiceJet will get access to the data room of Go First, which could help the Ajay Singh-led airline to benchmark its own current situation and what its future would be like.
SpiceJet, which recently announced a fund infusion of Rs 2,250 crore, has requested the Resolution Professional of Go First to allow it to submit EoI (Expression of Interest) so that it can submit a credible revival plan with a definite timeline for the grounded airline. SpiceJet shared this information with the BSE Ltd after news reports indicating SpiceJet’s interest made rounds yesterday.
For an airline that is struggling to stay afloat, is fighting multiple cases including those which have been filed for insolvency and also locked in a bitter battle over payments to Marans - the past owners, the interest in a carrier which is grounded and has no real asset is full of surprise.
The fund infusion is less than the accumulated losses just since COVID started and does not help in improving its net worth which has been negative for a long. Under such circumstances to take up another liability is a proposition which cannot be justified, yet the share price was up over 4 percent at midday today on the BSE.
SpiceJet has its own troubles
Nearly half the fleet of SpiceJet has been grounded and it has struggled on every front, from On Time Performance to slot utilisation and payment of salaries to mandatory government dues. Amidst this, if the airline expresses interest for an airline which has been grounded since May and has no aircraft on its own books, is locked in a battle with lessors for maintenance – it raises eyebrows like no other.
SpiceJet’s slump sale of its cargo arm and fund infusion, which was announced but not completed, has not had a large impact on operations. The airline is yet to induct MAX aircraft, the order which still reflects with Boeing but has seen little progress. Only one of its lessors agreed to its offer of converting dues to equity and others remain engaged for either unreached settlement or court cases.
Data is the new oil
If the EoI is accepted, SpiceJet will be given access to the data room of Go First as part of due diligence. Amongst other things these would show liabilities but also the route level data to an extent which will give a glimpse of the route profile of the airline where it made money. While strictly under Non Disclosure Agreements, route profiles can be built up over a period of time.
The data room will also give access to contracts, deals and a lot more which could help SpiceJet benchmark its own current situation and what its future would be like.
A reverse merger?
A resolution for unlisted entities like Go First could mean the lessors taking a huge haircut. As per data submitted in the Rajya Sabha, Go First has a long-term debt of 16,249,203,844, or Rs 1,624 crore. The banks could opt for a significant haircut to this to ensure that at least some amount is recovered.
Will this then make it possible to merge itself with the now lean and trim Go First and rename it SpiceJet? Kingfisher Airlines had done a reverse merger with Air Deccan and renamed it Kingfisher Airlines as it wanted the older Airline Operating Permit (AOP) to complete five years in domestic skies before flying international – one of the reasons why Vijay Mallya purchased Air Deccan.
If it happens, this could turn out to be the end of all woes for SpiceJet as it allows itself to be bigger at a fraction of the cost amongst other things. With the government focusing on the Insolvency and Bankruptcy Code and the revival of sick industries, this could be a golden way out to show a win-win situation.
Tail Note
For any transaction to go ahead, the airline will face challenges from stakeholders and courts. SpiceJet has informed the courts about its precarious financial position, and coming up with a plan to purchase and turn around a grounded carrier without first paying pending dues to Marans, creditors and lessors will be a challenge difficult to bypass.
There may be a glimmer of hope for Go First employees, some of whom are still with the airline. Does it mean going from one challenge to another since there are salary issues with SpiceJet as well? More importantly, how will the SpiceJet employees react to this news?