SpiceJet Q2 report card: Claims from Boeing over grounded 737 Max aircraft critical in lowering loss

Low-cost airline SpiceJet is in talks with lessors, vendors and lenders to either renegotiate contracts or defer payments as it strives to recover from the impact of COVID-19.

Central to the negotiations is its talks with aircraft manufacturer Boeing over the grounded 737 Max aircraft. With 13 of these aircraft grounded, SpiceJet has been in talks with Boeing for claims. In the second quarter, the airline has recognised Rs 138 crore of these claims as other income.

If not for this, the airline's losses would have been higher in the second quarter ending September 30.

"Had the Company not recognised such other income and the related foreign exchange restatements, the reported loss for the quarter would have been higher by Rs 120 crore," the airline's auditor SR Batliboi & Associates LLP said in its note.

Overall, the company's net loss narrowed to Rs 112.6 crore in the second quarter of FY21, as compared to a loss of Rs 462.6 crore in the same period, a year ago. The airline's total revenue contracted to Rs 1,305 crore, from Rs 3,074 crore over the same period.

In total, the airline has till now received about Rs 950 crore as claims from Boeing. The aircraft have been grounded since twin tragedies led to their ban globally.

Of late though, there have been indications that the aircraft - which was a bestseller for Boeing - may get back to air later this year. The US Federal Aviation Administration is in the final stages of reviewing proposed changes to Boeing Co's 737 MAX and expects to complete the process in the "coming days," Reuters had reported on November 10.

Like in the earlier quarter, SpiceJet reiterated on November 11 that it expects the aircraft to get back to service in the fourth quarter of the present financial year.

Renegotiations 

It is clear that for the coming quarters too, the claims from Boeing and benefits from other negotiations will be critical for the airline. Especially when its net worth had fallen further in the negative territory.

From a negative net worth of Rs 2,170 crore in the first quarter, this is widened to Rs 2,286 crore in the second quarter ending September 30.

"Such conditions, along with other matters set out in that note, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern," the auditor said.

SpiceJet said it is renegotiating various operating contracts, "including, in particular, contracts with aircraft lessors." Moreover, the company is also engaging with its lenders to defer dues.