The article discusses SpiceJet’s board considering options to raise capital through equity or convertible bond issuance to infuse liquidity, as the airline deals with a strained cash position and multiple lessor lawsuits over unpaid dues.
Analysis for layman:
Preferential allotment refers to a listed company issuing shares or convertible bonds to select investors rather than all shareholders. This allows raising capital faster given the company’s urgent needs but dilutes existing owners.
SpiceJet has faced losses since 2018-19 as the aviation industry battles high fuel costs and price wars. The company aims to raise funding now after previous attempts failed as profits remain elusive raising investor wariness. However, creditor pressures are mounting given court cases by aircraft lessors over lease dues and even aircraft seizures impacting operations.
The fundraise if successful can offer SpiceJet temporary relief to clear statutory obligations like employee payments, fuel dues as well as ease lessor pressures through lease rent settlements. Asset-light models and optimizing routes and fleet to conserve cash also helps sustainability.
However, the track record of utilizing past capital infusions prudently has been patchy. Long term viability requires consistent profit generation led by better pricing discipline industry-wide and lower cost structures while maintaining safety and service standards. The uptick in Q1 profits may not sustain if competition intensifies. Ultimately consolidation may be inevitable otherwise.
The wider aviation sector also remains challenged unless fuel taxation and airport charges rationalize to make air travel more affordable encouraging demand growth.
Impact on Retail Investors:
For retail investors, SpiceJet’s cash pressures signal continued turbulence for shareholders given plausible equity value erosion from preferential issuances or restructuring. Less risky bets exist among well-capitalized peers with stronger credit profiles and governance.
Cautious optimism warrants in few other aviation enablers like airport service operators, aircraft maintenance providers if sector tailwinds manifest. But discretionary spend sensitive sectors like hospitality, travel aggregators also offer indirect liquidity levered plays only for risk tolerant investors at this juncture.
Overall, aviation is best avoided by retail investors currently other than selects plays in exceptional service providers insulated from industry cycles.
While SpiceJet’s capital raising is a temporary breather, structural industry shifts or consolidatory events may be needed to offset cyclicality for investor confidence.
ET Bureau. “SpiceJet to Consider Raising Fresh Capital.” The Economic Times, 8 Dec.