Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

SpiceJet - A case against bail out
Fri, 19 Dec Pre-Open

Air India, Kingfisher and now Spice jet - these three are the companies that now define how bad domestic aviation business can be. But more than the aviation industry, these companies have proved how flawed India's financial sector and regulators are. What else could be the reason for the huge bailouts to these companies that have regularly defaulted on their financial dues?

While we are yet not over with Kingfisher fiasco, here is another candidate seeking a bail out - a loan worth Rs 6 bn. Among other dues such as to banks, staff and airport authorities, Spice Jet is not even able to afford the fuel to run the flight. That too, at a time when crude prices are crashing. Bailing it out will be ridiculous to say the least. That said, we will not be surprised if the company is entertained. After all, it is the Government itself pleading on its behalf.

It was reported that Spice Jet was stripping parts off an aircraft to provide spares to other planes because of the cash crisis. We are sure even the passengers now are skeptical to travel by Spice Jet. We wonder what gives the Government so much of confidence on this firm that has reported losses in the bottomline in 13 out of 15 years of its operations. Not to mention the negative net worth and immediate and overall dues of Rs 14 bn and Rs 20 bn respectively.

While the financials of this firm are in a sorry state indeed, the financial profile of its promoter Mr. Maran is quite in contrast. As an article in Business Standard suggests, Mr. Maran along with his wife is one of the best paid executives, withdrawing around Rs 1.2 bn (in FY14 alone). And this could be used to at least pay part of the pending payments to its creditors. Further, the article proposes a small sell off in Sun TV (75% stake of Maran family) to clear the dues.

We are not sure if sell off in Sun TV is a good idea, as it might be negative for Sun TV's minority shareholders who have nothing to do with this issue. Again, with a 53.5% stake in SpiceJet and it being a limited liability company, one might not expect Mr. Maran to come forward to clear the dues. However, we believe he needs to be made more liable for where Spice Jet is today. Otherwise, his mess becomes a burden for tax payers' money, whose deposits a bank might use in case a bail out is approved. It is time that the Government decides against a bail out and sets the right precedent for the reckless capitalists in this industry that seem to be taking everyone else for a ride.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "SpiceJet - A case against bail out". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms