SpiceJet Ltd is likely to face added financial pressure next year amind increasing uncertainty over deliveries of Boeing 737 Max aircraft. Boeing reported that it may consider suspending production of 737 Max planes or reducing the output until clearances from the US Federal Aviation Administration (FAA).
Since March, following two fatal crashes in Indonesia and Ethiopia that killed a total of 346 people, the Boeing 737 Max planes have all been grounded. With SpiceJet ordering as many as 205 of the 737 Max planes in 2017, of which only 13 have been delivered, the plan is grounded due to ongoing FAA safety review, causing more strain for the Indian carrier. Kapil Kaul, chief executive officer for India and Middle East at aviation intelligence firm CAPA said that the development does not bode well as it continues to delays SpiceJet’s expansion given its current codeshare agreement with Emirates.
— AFP news agency (@AFP) December 16, 2019
What matters for SpiceJet’s survival is cash, and clearly, the airline is short of it.
He further adds on that the delays have impacted the airline’s strategically and financially. “Short term capacity induction, with older aircraft with different specs, has not been able to compensate for the MAX”, concluded Kaul. With SpiceJet already reporting an operating loss of INR 282.3 crore and a net loss of INR 462.6 crore in the second quarter of FY20.
The grounding of the MAX 737 Max planes, has weighed on SpiceJet’s ability to reap benefits of the greater fuel efficiency of 737 Max planes, at a time when the company is struggling with rising costs even as air traffic growth has slowed. SpiceJet is the only major airline in India to have inducted the Boeing 737 Max planes in its fleet. FAA Chief Steve Dickson has expressed concern that Boeing Co. is persuing a return-to-service schedule for the grounded 737 Max aircraft that is “not realistic”.
However, with Boeing setting aside USD 5.6 billion in July this year to compensate airlines for the late delivery of aircraft and the grounding of the existing ones, one can hope that SpiceJet can hold on till the end and not end up being another Jet Airways story.