Compensation from Boeing over 737 MAX grounding key to SpiceJet operations

Incentives crucial for its survival as 737 MAX grounding stalls expansion plans

SpiceJet, a key customer for Boeing, is desperately waiting for compensation from the US aerospace major over grounding of 737 MAX aircraft, which is key to its survival.

The company received an interim offer for compensation from Boeing two days back.

“We do have an interim offer from Boeing, which gives us a lot of confidence of what we have shown in balance sheet. The Boeing compensation is important and will play a key role in the entire operation,” said SpiceJet Chief Financial Officer (CFO) Kiran Koteshwar.

The CFO said he expected a significant portion of compensation to come by March.

The compensation from Boeing is likely to be not only in cash but will also include incentives in form of delivery payments, maintenance, and service of aircraft and training of crews. As part of the package, Boeing has agreed to build a simulator for pilot training in India, which would significantly bring down the training cost for SpiceJet.

“We are agnostic about the kind of compensation offered. We will see how it plays out. There are various means to skin this cat and we will ensure that our lease cost will be down forever. It may be beneficial for us not to take cash and credits based on our strategy,” Koteshwar said.

A significant amount of incentives on the services and maintenance of aircraft and financing of aircraft will bring down the company’s future cost. “Boeing will set up a simulator in India and SpiceJet being the primary customer will be a big beneficiary of the aircraft. “If I have to do a refresher training, the pilot goes off for five days now in Europe or Singapore. That will come down significantly,” he said.

The incentives are crucial to SpcieJet's survival as the prolonged grounding of the aircraft has stalled its expansion plans and income from sale and leaseback of aircraft straining its balance sheet. As of September 30, the airline had cash and cash equivalents worth Rs 93 crore. What's more, it had a negative net worth of about Rs 850 crore. For comparison, market leader IndiGo had cash and cash equivalents worth about Rs 18,736 crore and a net worth of about Rs 6,200 crore at the end of September.

But Koteshawar said the forward sales had helped the airline maintain cash for running the operations. “Yes, it’ss a bit of strain but as someone managing the finances of the company I should say we will do fine with the compensation from Boeing.”