SpiceJet Eyes $250 Million Fund Raise In 2 Months Says Chairman Ajay Singh; Shares In Focus

In a bid to regain financial stability and operational capacity, Indian airline SpiceJet has announced plans to raise $250 million in a new funding round within the next two months. Chairman Ajay Singh made the announcement at the CAPA India Aviation Summit on Wednesday, underscoring the carrier's urgent need for capital to clear unpaid dues and restore its fleet to full capacity.

This move follows a series of fundraising efforts throughout 2023, during which SpiceJet raised approximately Rs 744 crore ($89.2 million). These funds were crucial in helping the airline manage its financial obligations and address the demands of leasing companies, including AerCap, the world's largest aircraft lessor, with which SpiceJet has reached settlements over recent months.

SpiceJet's financial woes have been well-documented. The airline has been grappling with the challenge of repaying leasing companies and restoring its operational capabilities. Singh's announcement of the new funding round is seen as a strategic step towards stabilizing the airline's financial health. However, he did not disclose specific details regarding the method of the fundraise or the particular uses for the capital.

"We are committed to returning SpiceJet to its full operational capacity and ensuring we meet all our financial commitments," Singh said at the summit. The airline's efforts to raise capital are part of a broader strategy to navigate the turbulent skies of the aviation industry.

In addition to discussing SpiceJet's funding plans, Singh took the opportunity to address a critical issue affecting the aviation sector: the taxation of aviation turbine fuel (ATF). He called for ATF to be included under the Goods and Services Tax (GST) regime. Currently, ATF is taxed under the Central Excise Act, significantly inflating operational costs for airlines.

"The government can't keep taxing aviation as a rich man's product and expect low-cost services," Singh asserted. His comments highlight the disparity in tax treatment that low-cost carriers face, which hampers their ability to offer affordable services. Bringing ATF under the GST could potentially reduce this financial burden, making air travel more accessible and sustainable for low-cost carriers.

The call for ATF to be included under GST has been echoed by various industry analysts. They argue that such a move could significantly reduce the cost burden on airlines, enabling them to operate more efficiently. Currently, only five states in India have not reduced the Value Added Tax (VAT) on jet fuel, which remains a significant cost factor for airlines operating in these regions.

Kapil Kaul, CEO of CAPA India, expressed optimism that the remaining states would rationalize their tax policies in the next couple of financial years. "We expect states holding out on tax cuts on jet fuel to rationalize taxation in the financial years 2025 or 2026," Kaul stated, suggesting a potential easing of operational costs for airlines in the near future.

In July 2022, the Indian government imposed a windfall tax on aviation fuel to prevent private refiners from prioritizing exports over local supply. This tax was lifted in January 2023, offering some relief to the industry. However, the overarching issue of high ATF costs continues to challenge airlines, particularly low-cost carriers like SpiceJet.

Singh's comments at the summit reflect a broader sentiment within the industry that regulatory reforms are necessary to ensure sustainable growth. The inclusion of ATF under GST is seen as a critical step in this direction, potentially lowering costs and fostering a more competitive environment for airlines.

As SpiceJet embarks on its latest funding round, the airline's future hinges on its ability to secure the necessary capital and navigate the regulatory landscape effectively. Singh's appeal for tax reforms highlights the broader challenges facing the aviation industry and the need for a supportive policy framework.

For now, SpiceJet's immediate focus remains on raising the $250 million needed to stabilize its operations and meet its financial obligations. The coming months will be crucial for the airline as it seeks to regain its footing and chart a path towards recovery and growth in the Indian aviation market.

*Inputs from Reuters*