SpiceJet foresees tough times

March 5th, 2012 - 2:08 pm ICT by IANS  

Pranab Mukherjee New Delhi, March 5 (IANS) Budget carrier SpiceJet’s chief executive Neil Mills feels the aviation sector, marred by high fuel and interest cost in the coming fiscal, will continue to face “tough operating conditions”.

“I think the tough conditions will continue for a while in the coming fiscal. Our futures are pegged with oil prices and they are very high right now,” Mills told IANS in an interview.

“There are some decisions on new policy like direct import of fuel and foreign direct investment. We are evaluating them and will do what is best for us.”

According to Mills, the low cost carrier (LCC) was in touch with fuel suppliers for logistical support to allow airlines to directly import jet fuel.

“We are evaluating the impact of the decision whenever it comes. We are in touch with them (fuel suppliers), but I cannot comment on how much savings would emerge out of this. But it will be substantial.”

Mills’ views come as the government had on Feb 22 notified direct import of jet fuel and called upon interested carriers to apply for licences.

This came after the Feb 7 decision by a group of ministers (GoM) headed by Finance Minister Pranab Mukherjee to roll out a plan to help domestic carriers, allowing them to directly import aviation fuel.

The move will enable airlines to cut operating costs by about 10-15 percent, saving on sales tax, which ranges between three percent and 35 percent and is levied by state governments.

Jet fuel now constitutes about 50 percent of the total operating cost of airlines in India. Domestic airlines are estimated to have lost around Rs.3,000 crore in the first six months of this fiscal.

On the issue of foreign capital by foreign airlines in domestic passenger carriers, Mills said the airline was not looking for a foreign partner but was evaluating the proposal.

Mills’ confidence is evident as the airline’s promoter Kalanidhi Maran decided March 2 to infuse Rs.100 crore into the carrier in lieu of five percent equity or additional 42.9 million shares.

“This decision shows the confidence of the promoters in the company and its viability. The board has taken this decision and will allot 42.9 million preferential shares to the promoters,” Mills said.

“This is the second time in eight months when the promoters have infused equity. Last September, we received Rs.130 crore and five percent of the equity shares were allotted to the promoters.”

Fresh funds should come as a relief to the airline, as the whole sector is facing tough operating conditions like high interest and fuel costs.

“This (fund) will go into the normal working capital and for general growth. Our debts are affordable, we are paying the oil companies, salaries and we are not behind any schedule. We will get through these tough times,” Mills said.

The budget carrier had Feb 6 reported a net loss of Rs.39.26 crore for the quarter ended Dec 31 from a net profit of Rs.94.44 crore in the like period of 2010-11.

The company’s auditors in a review report said that accumulated losses have eroded the net worth of the company.

“As of Dec, 31, 2011, the company’s accumulated losses of Rs.107,781.3 lakh has substantially eroded the net worth of the company, indicating the existence of a material uncertainty that may cast doubts about the company’s ability to continue as a going concern,” the auditors said.

(Rohit Vaid can be contacted at rohit.v@ians.in)

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