The Modi government is reportedly ‘requesting’ banks to fund SpiceJet when the money is certain to be wasted. The UPA government at least, did not publicly put pressure on banks to lend to Kingfisher Airlines

Prime Minister Narendra Modi has stated repeatedly that the government has no business to be in business. But not only is it continuing with every cash-guzzling public sector company cash-strapped SpiceJet is receiving a 'lease of life' from none other than the union government. The Ministry of Civil Aviation (MCA) Tuesday reported to have said that it would take steps to keep SpiceJet from shutting down and for the larger good of the aviation sector. SpiceJet is neither a state-run carrier like Air India, nor its promoters are out of cash. Then why is the government 'desperate' to dole out a financial bonanza to this airline? In fact, if at all the government is keen in helping the company, it should use the method applied to save Satyam Computers.

The MCA has asked oil marketing companies (OMCs) and airport operators, like Airport Authority of India (AAI) to give further credit to SpiceJet for 15 days. As on 15th December, the carrier, owned by Tamil Nadu politicians Marans, owes Rs14 crore to OMCs and it require fuel of about Rs5 crore every day. However, according to media reports, SpiceJet operations were grounded on Wednesday morning as OMC refused to give fuel to the carrier.

"Indian banks may be requested to give some working capital loan based on the assurances of the promoter,” the statement of the MCA said. In a country like India, “may be requested” is a government order, given that public sector banks bend backwards to oblige politicians.

According to media reports, banks or financial institutions could lend up to Rs600 crore backed on a personal guarantee from the SpiceJet chairman Kalanithi Maran, with a rider that it would be paid immediately after securing the long-term investment, which is expected to take around eight weeks.

The Ministry is also requesting the Finance Ministry to allow SpiceJet to opt for external commercial borrowing (ECB) for working capital as special dispensation as was done in the 2012 when a similar crisis had arisen in the aviation sector.

It is strange that the Narendra Modi government is keen to bail out a carrier, owned by an extremely wealthy family of politicians, when it is clear that the airlines’ days are numbered. The promoters know it very well. SpiceJet, which is suffering huge daily losses and the wrath of consumers due to flight cancellations, will have to remain operational using its own recapitalisation strategy as the promoters. However, according to a media report, the promoters will not inject additional capital. "We do not have the liquidity to invest large sums at the time which is why we need bank financing. For which the promoters are willing to provide a guarantee. We cannot do more than this," SL Narayanan, chief financial officer of Sun Group told Reuters on Wednesday.

Since, even the Sun Group, the parent of SpiceJet is not ready to infuse any money into the carrier, why should MCA “request” the banks to lend Rs600 crore?

The ‘request’ from the Ministry to banks for lending money to a cash-strapped carrier is unprecedented. Even the previous Manmohan Singh led United Progressive Alliance (UPA) government had not done this for the now defunct Kingfisher Airlines, that too when the carrier had an influential and well connected promoter.

SpiceJet, which reported its fifth consecutive quarterly loss, has been trying to raise fresh capital for much of this year. On 24 November 2014, the promoters of SpiceJet, informed the BSE that they are seeking investors to raise fresh capital and return to profitability.

The airline, controlled by Kalanithi Maran's Sun Group, said that a few parties have approached it and evinced interest in making an investment. "However, since the deliberations with such prospective investors are at an exploratory and preliminary stage, it will be improper to comment on the specifics of any possible stake sale or valuation at this stage," they clarified.

Earlier in June 2012, SpiceJet reported profits, a rarity for an airline. Its net profit for the quarter ended June 2012 grew to Rs56.15 crore when compared to a massive loss of Rs71.96 crore recorded in the corresponding quarter of the previous fiscal. However, the auditors have voiced their concerns in their review report.

Auditor SR Batliboi & Associates, revealed that it had used accounting tricks to boost net profit. The auditor noted had said, “No provision has been made for interest of Rs747.1 lakh up to 30 June 2012, relating to earlier years on the outstanding inter-corporate deposits taken by the company. Had the same been accounted for, the net profit (after tax) for the quarter ended 30 June 2012, would have been lower by Rs597.60 lakh and accumulated losses as at date would have been higher by the same amount.” Even an exceptional income of Rs12.86 crore boosted SpiceJet's net profit. The income in question was the warranty claim set against some of the exceptional costs it incurred on engine repair last year.

In April this year, the Directorate General of Civil Aviation (DGCA) slammed SpiceJet for offering tickets at just Re1. It termed SpiceJet’s offer of Re1 across its domestic network as 'predatory' and a 'malpractice' and directed the carrier to immediately stop the offer.

Moneylife has had the opportunity to cover the stories of the domestic carriers, which have been indulging in price wars (http://www.moneylife.in/article/indian-aviation-price-war/36101.html), while all the time complaining of huge burden of interest payments on their capital purchases and the heavy losses that they were incurring, year after year. If what they claim is true, why in the world should they commit suicide by offering uneconomic rates, which presumably do not cover their break-even points?

There is absolutely no reason of pumping taxpayer's money into the ailing carrier which is what it would mean, if banks do lend to the airline that is certain to close down sooner or later.