Can SpiceJet stay afloat? Auditors worry after record quarterly loss of Rs 807 crore

SpiceJet's auditors are of the view that there is a significant doubt on the airline's ability to continue as a going concern after the budget carrier reported its highest ever quarterly loss during the March quarter. The loss was attributed to low demand due to COVID-19 led suspension of flight operations and grounding of Boeing 737 MAX planes.

In a report submitted to the SpiceJet board on Wednesday, S.R. Batliboi and Associates Llp said the company has incurred losses during current and previous years and its current liabilities exceeded total assets.

Low-cost carrier SpiceJet has closed full financial year 2019-20 with a net loss of Rs 935 crore as compared to the net loss of Rs 316 crore in the previous fiscal. For the January-March quarter of FY20, the carrier reported a net loss of Rs 807.1 crore as against net profit of Rs 56.28 corre in Q4 FY19.

It is notable that the airline has reported this massive loss in a quarter, which was partially affected by the COVID-19 pandemic. The April-June quarter earning numbers will provide a clear picture of the disruption caused by the coronavirus pandemics on the finances of SpiceJet.

Also Read: SpiceJet FY20 results: Airline reports net loss of Rs 935 crore due to COVID-19, grounding of Boeing 737 MAX

"These conditions...indicate the existence of a material uncertainty that may cast significant doubt about the company's ability to continue as a going concern as its current liabilities exceeded its current assets on its balance sheet date," the auditors said.

SpiceJet, which has 13 of its B737 MAX aircraft grounded since last March, has assumed that Boeing will pay a compensation of Rs 671.8 crore for the expenses it incurred during the year under review on "aircraft and supplemental lease rentals and certain other identified expenses relating to the Max aircraft".

The auditors raised concerns over recognition of Rs 671.8 crore as other income for the year ended March 31, 2020 (including Rs 134.53 crore for the quarter ended March 31, 2020) and the related foreign exchange gain on restatement of these balances for the quarter and year ended March 31, 2020, amounting to Rs 36.70 crore and Rs 42.73 crore, respectively.

Also Read: After US, SpiceJet gets nod to operate flights between India, UK

If the SpiceJet had not recognised such other income (including its related foreign exchange restatement), the reported loss for the quarter and year ended March 31, 2020, would have been Rs 978.31 crore and Rs 1,649.23 crore, respectively, and accumulated losses as on March 31, 2020, would have been higher by Rs 714.53 crore, the auditors said.

"In our view, there is no virtual certainty to recognise such other income and related receivable,...provisions, contingent liabilities and contingent assets," it said.

SpiceJet, on the other hand, said that it has recognised these incomes on the basis of the ongoing negotiations and the interim offer received from Boeing, its own assessment and legal advice.

Despite the worldwide grounding of Boeing 737 MAX aircraft due to technical reasons, the company continues to incur various costs with respect to these aircraft. As a result of this, and the uncertainty in timing of return to operations of these aircraft, SpiceJet has initiated the process of claims on the aircraft manufacturer towards costs and losses, which are currently under discussion.

Also Read: IndiGo Q1 results: Airline posts Rs 2,844 crore loss as coronavirus hits operations

Apart from this, the budget carrier has said that it has deferred some payment to various parties, including vendors and expressed inability to determine all such costs and penalties.

Commenting on earnings, Ajay Singh, Chairman and Managing Director, SpiceJet, said: "Two key factors that adversely impacted our performance and the bottom line was the COVID-19 pandemic that started affecting demand adversely from mid-February and grounding of the 737 MAX, which has been out of service for over a year now."

"Despite the year-long grounding of the MAX aircraft, SpiceJet ran a profitable operation till COVID hit to 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."

Ahead of Q4 result, SpiceJet shares closed 1.15 per cent higher at Rs 48.50 apiece on the Bombay Stock Exchange on Wednesday.