SpiceJet sweetens partnership with Boeing, places $22-billion order

Expanding its relationship with Boeing, domestic low-cost carrier SpiceJet has announced a fresh order for 150 aircraft from the American aerospace company. Today's purchase decision, along with an earlier order of 55 aircraft from Spicejet, makes it a $22-billion deal, probably the largest commercial aircraft deal for Boeing in India.

Of the total orders placed on Friday, the order for 100 Boeing 737-8 MAX aircraft is firm, while the purchase of 50 wide-body long-haul aircraft is purchase rights (optional). MAX aircraft allows a five-hour flight and will allow the company to explore new international destinations.

"SpiceJet will have purchase rights for the remaining 50 aircraft, which will be converted depending on the airline's capability to add long-haul aircraft in the future," said Ajay Singh, chairman of SpiceJet. Singh chose Boeing over Airbus for this order. "Boeing gave us an extremely commercial and aggressive offer."

Deliveries for the aircraft will begin in the third quarter of the calendar year 2018 and will be completed by 2024. It is not immediately clear how the company will finance the purchase of these aircraft. "There are various financing models available. One of them is the sale-and-leaseback model. The other models available are funding through EXIM Bank and foreign debt, which are cheaper," said Singh. He said the airline would not opt for debt or equity route to fund the purchases.

"The new aircraft order is on expected lines and significant directionally. A positive and long-term story is likely to emerge with this order," said Kapil Kaul, chief executive officer and director at CAPA, South Asia. Spicejet currently has a share of 12.8 per cent in the domestic aviation market and is looking to expand share. Singh, however, said the company is not after market share and is squarely aiming for profitable operations. "One of the problems of the previous management was that they went after market share, even if by losing money."

SpiceJet posted a record profit of Rs 59 crore in the Q2 of FY17. Singh has worked on cost reduction by renegotiating various contracts and streamlining operations. It has beefed up its ancillary revenues from single-digit a year ago to 16 per cent now. Benign fuel prices also helped. Spicejet's stock gained 2.5 per cent to close at Rs 65.5 on the BSE on Friday even as the market ended flat.

SpiceJet, which was on the verge of a closure in late 2014 has seen a quick turnaround under Singh. Singh, who took over the company from Marans, grew market share from 9 to 13 per cent in 2016 calendar year. The budget carrier has a fleet of 32 Boeing 737 aircraft and 17 Bombardier aircraft. Singh said the company is looking at adding aircraft in their Bombardier fleet too and is speaking to Bombardier, ATR and Embraer.

On Fuel prices

We feel that it (crude oil) will still remain in the range of $60-65 a barrel mark, said Singh. The company said it is comfortable and allows the company to pass minor fluctuations. However, beyond a point, the demand gets impacted. "If it crosses $70, it starts hurting."

Regarding on time performance

"I don't understand what the controversy is all about. This is the same data that had been used by the same airline (Indigo) saying they are number one for years," he said. "I am happy for anybody to evaluate the data. We are only quoting the government data."

On FDI Norms

No other country allows 100 per cent FDI in aviation and it takes away the level playing field. It creates problems in bilaterals. "We are not allowed the same privilege outside. We hope the government will take an appropriate decision," Singh said.