SpiceJet's shares soared 6% to ₹70 on 23rd September, following a four-day losing streak. This rebound was triggered by the airline’s announcement of its board approving the issuance and allotment of 48.71 crore shares to qualified institutional buyers at ₹61 per share. This marks a significant boost for the company amid its ongoing financial challenges and efforts to raise ₹3,000 crore. Investors in the share market investment space are keenly watching this development.
Board approval sparks recovery
The recent slump in SpiceJet's share price worried investors, but the board’s decision to approve the share allotment was a key turning point. This capital-raising move was approved by shareholders last week, and the company is actively exploring various funding options to meet its financial obligations. SpiceJet has been under immense pressure due to its legal and financial challenges, including grounded aircraft and accumulated debts.
The fresh capital will primarily be used to clear outstanding dues, including payments to creditors, lessors, engineering vendors, and financiers. By securing this funding, SpiceJet aims to stabilise its operations and regain some ground in the competitive aviation industry.
Grounding of planes adds to the pressure
Despite this positive funding news, SpiceJet continues to face operational setbacks. The Supreme Court recently upheld a ruling by the Delhi High Court that required the grounding of three aircraft engines due to the airline’s failure to meet its payment obligations to lessors, Team France 01 SAS and Sunbird France 02 SAS. As a result, two planes will be taken out of service, further straining the airline’s fleet, which currently stands at 21 aircraft.
This grounding comes at a critical time for SpiceJet as it tries to regain stability. While the new funding offers short-term relief, the airline will need to address these operational challenges if it is to compete in the highly competitive aviation market effectively.
Financial hurdles remain significant
The airline’s financial challenges go beyond operational disruptions. According to its preliminary placement document, SpiceJet has struggled to meet its statutory obligations on a monthly basis. As of 15th September, the airline’s outstanding statutory dues amounted to ₹601.5 crore. The proceeds from the share allotment will be directed towards clearing these dues, with ₹297.5 crore set aside for Tax Deducted at Source (TDS), ₹156.4 crore for employees’ provident fund deposits, and ₹145.1 crore for Goods and Services Tax (GST).
Share market response and outlook
Despite the challenges, SpiceJet's stock has shown resilience. Year to date, the airline’s stock has risen by 18%, outpacing the benchmark Nifty 50, which has seen a 16% gain over the same period. Investors focused on share market investment are optimistic that this recent capital raise could help the airline overcome its immediate challenges.
However, while this recent surge offers hope, SpiceJet’s ability to navigate through its financial and operational hurdles will be crucial for long-term success. The airline’s management will need to focus on strengthening its financial position and stabilising operations if it aims to retain investor confidence and secure its position in the highly competitive aviation sector.
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