Spicejet’s Fairytale Turnaround To Become World’s Best Aviation Stock

Chandigarh-based Varun Checker, 28, a former Larsen and Toubro Ltd engineer, bought SpiceJet Ltd shares at Rs15 apiece when the airline was close to shutting down because of a cash crunch in late 2014.

He exited in few months when the stock touched Rs50.

Today, SpiceJet’s shares are hovering around Rs125 each. In June, Bloomberg said it was the world’s best aviation stock this year with a 124% gain.

“I sold too early,” said Checker, “but still I made three-four times—Rs50,000 became Rs1.5 lakh. This was the best return I got on any stock in that time frame.”

SpiceJet is valued at Rs7,400 crore, up from the Rs650 crore it was valued at during its darkest hour in 2014. Rival Jet Airways Ltd, with a fleet double that of SpiceJet, is valued at Rs6,200 crore.

In the past two months, not only has the budget airline found mention from US president Donald Trump for buying Boeing planes “which will support thousands and thousands of American jobs”, it has also got more clarity on a legacy issue involving a share dispute with its former owners the Marans (Kalanithi Maran). The airline now stands poised for expansion. Interestingly, the current US secretary of commerce Wilbur Ross once held a 30% stake in the airline (he sold it in 2010).

The turnaround story of SpiceJet is remarkable—starting from the fact that current owner Ajay Singh bought if off the Marans for Rs2 (for 58.64% of the company’s equity), according to a report in BloombergQuint that cited court papers filed in the dispute between the Marans and SpiceJet.

To be fair to Singh though, the airline was bleeding then: its net worth was a negative Rs1,329 crore, short-term liabilities over Rs2,000 crore, and it ended 2014-15 with a loss of Rs687 crore, according to the same report. SpiceJet also had a debt of Rs1,240 crore as of March 2015.

Equally remarkable is the alacrity with which the government cleared the deal (seven days according to BloombergQuint). The civil aviation ministry also exempted the new owners from having to make an open offer to public shareholders as required by government law.

Still, not too many airlines have come back from where SpiceJet found itself in late 2014.

Vijay Mallya’s Kingfisher Airlines, M. Thiagarajan’s Paramount Airways, Mohan Meakin Ltd’s Indus Airways, and half a dozen others have closed down in similar circumstances in recent years.

“They were lucky but they also controlled costs and improved many things,” said Amrit Pandurangi, former head of infrastructure practice at Deloitte Touche Tohmatsu India Llp, referring to the drop in fuel prices.

Singh, the new promoter-chairman of SpiceJet, oversaw the transition closely.

“There was a plan to shut down the airline,” said Singh, chairman of SpiceJet and the airline’s original co-founder back in 2005 (he exited in 2008 before returning in January 2015). “I remember those days—every hour was full of anxiety.”

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