SpiceJet seeks 3-months’ time from lessor
MUMBAI: SpiceJet Ltd has sought a three-month extension from a leasing company for making payments on aircraft leases as a delay in delivery of 737 Max planes by Boeing Co. has caused liquidity issues at the budget airline, said ratings agency Crisil Ltd.
Crisil also downgraded its long-term rating on SpiceJet’s bank facilities from BBB stable to BB negative. It also downgraded the short-term rating on the bank facilities from ‘A3+’ to ‘A4’.
“Delay in delivery of Boeing 737 Max aircraft further led to liquidity mismatch as the company was to receive healthy profits on sale and lease back transaction,” Crisil added in the report.
Instruments with A3 rating are considered to have moderate degree of safety, while those with A4 rating are considered to have a minimal degree of safety regarding timely payment of financial obligations.
“The downgrade reflects Crisil’s belief that SpiceJet’s operating performance will remain under pressure in the near to medium term, driven by significant increase in the operating cost and limited ability to pass on the increased cost to customers because of intense competition,” said Crisil.
“Further, SpiceJet was expecting some cash infusion from the sale and lease back transactions that got delayed because of late delivery of the new aircraft. Hence, the liquidity profile has weakened,” it said.
Under the sale and lease back method, airlines often sell their new planes at a premium to their buying price to leasing companies and free up cash by leasing them back.
SpiceJet had in January 2017 ordered 205 Boeing aircraft valued at $22 billion at list prices. This was on top of a previous order for 155 Boeing planes.
The airline is expected to fund a large part of its aircraft purchases through the sale and lease back mechanism.