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Will India's SpiceJet Go The Way Of Kingfisher Airlines?

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India’s low cost carrier SpiceJet posted a record loss over $170 million last year, prompting some in the commercial aviation industry to suggest the airline may be unable to operate.

SpiceJet’s local auditor — Batliboi and Associates — said the loss, coupled with SpiceJet’s total liabilities exceeding its assets by around $171 million as of March 31, 2014. The poor showing in the market last year for the airline that’s been featured in the Disney movie Million Dollar Arm “indicates the existence of a material uncertainty regarding the company’s ability to continue as a going concern.”

India’s consumer travel market has been a hard slog for the airlines. Billionaire Vijay Mallya nearly lost his shirt when his Kingfisher Airlines was grounded in 2012 by aviation authorities and is now being sold off to pay its largest creditor, theState Bank of India .

670px-spicejet_aircraft.jpgA SpiceJet Boeing 737-800 at Indira Gandhi International Airport. The airline put in a multi-billion dollar order for 42 Boeing 737s this year. However, the company’s auditor said that following last year’s devastating financial results, SpiceJet may not be able to survive as an airline. (Photo credit: Wikipedia)

Kingfisher’s problems began with financial woes that led to mismanagement of payroll. Staffers, including pilots, simply were not paid for months. SpiceJet does not have that kind of problem with meeting payroll, at least not yet. The airline laid most of the blame on a weak rupee, which plummeted against the dollar starting late last year.

The airline said in a statement that its fiscal year was “perhaps the most challenging period in Indian aviation history. The sharp depreciation of the Rupee during the quarter ended September 30, 2013, was unprecedented. Given the fact that over 75% of any Indian airline’s cost is influenced by the dollar, the effects of the exchange rates on a broad spectrum of overhead costs were crippling.”

The rupee was trading at over 60 to one to the dollar a month ago, but market consensus is for the rupee to recover post-elections. The election results came in on Friday with BJP front man Narendra Modi expected to take the helm as Prime Minister seeing his party won a majority of seats in Parliament.

SpiceJet’s executives, on the other hand, are not talking about a sale at this time.

The airline has an order out for 42 Boeing 737s, so any financial problem with the airline would reduce the order load for Boeing BA +0.44%. The order is worth $4.3 billion.

SpiceJet currently operates a fleet of 36 Boeing 737-800s and 6 Boeing 737-900s. Share prices of the low-cost carrier have been declining since the third quarter after it announced a $28 million loss. Year-to-date, SpiceJet shares are down 20.48%. Mallya’s Kingfisher Airlines is down 46.7% on the Bombay Stock Exchange.

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