SpiceJet auditor unsure of airline's ability to continue as going concern

SpiceJet's auditor has expressed doubt on the airline's ability to continue as a going concern as two successive annual losses have led to erosion of its net worth.

SpiceJet posted a pre tax loss of Rs 807 crore in Q4FY20 due to an increase in finance charges, depreciation and foreign exchange loss as against Rs 56.3 crore profit in same period last year. The fourth quarter result was announced on Wednesday.

The Covid-19 pandemic and the grounding of Boeing 737 Max aircraft also weighed in on the results. Revenue was up 13 per cent in the fourth quarter to Rs 2864 crore due to muted demand.

On a full year basis, the airline made a loss Rs 934.8 crore.

"The company has accumulated losses and its net worth has been fully eroded. The company has incurred a net loss during the current and previous year and, the company’s current liabilities exceeded its current assets as at the balance sheet date," the airline's auditor S R Batliboi & Associates observed. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern, the auditor said.

SpiceJet's outgoing chief financial officer Kiran Koteshwar said the airline has implemented strict cost control measures to limit cash burn. 

"Our cash balance has not changed much compared to March due to various actions like negotiation with lessors, salary restructuring, deferment of payment to partners and suppliers though mutual negotiations," he said, adding that steps are also being taken to optimise aircraft utilisation and redeploy planes in focus markets to increase revenue.

He further said that negotiation with Boeing for compensation of 737 Max planes was in the final stages.

While discussions with Boeing are underway, the airline recognised Rs 134.5 crore towards compensation from the aircraft manufacturer and the same has been recorded as other income in the airline's accounts.

SpiceJet expects Max aircraft to return into service in first quarter of calendar year 2021 and the airline will continue to add operationally efficient aircraft to its fleet.

"Despite the year-long grounding of the Max aircraft, SpiceJet ran a profitable operation till Covid-19 hit demand from mid-February. Indian and the global aviation industry are going through the toughest-ever phase in aviation history. We at SpiceJet have constantly adapted to the changing economic environment and I am happy that our cargo operations have performed very well. I am confident that things will only improve in the times to come. We remain cautious but optimistic about the future," the airline's chairman Ajay Singh said in a statement.