India’s SpiceJet to finalise compensation deal with Boeing by March-end

New Delhi: Budget carrier SpiceJet expects to finalise a compensation deal with Boeing for grounding of its 737 Max aircraft by the end of the current quarter.

The proposed deal might also include the erection of a simulator-based pilot’s training centre in India.

Accordingly, the airline, until now has been representing only a portion of the compensation it expects to receive from Boeing in its quarterly results, will be able to get the full amount after March 31, 2020.

Currently, the airline has 13 of 737 Max grounded, impacting its revenues and international expansion plan.

“We have received an interim compensation offer from Boeing… We are currently studying the offer and will negotiate it further with Boeing,” SpiceJet’s Chief Financial Officer Kiran Koteshwar told IANS.

“We will be able to finalise the compensation agreement with Boeing by March 31.”

On last Friday, SpiceJet reported a profit of Rs 7.32 billion for the quarter ending December 31, 2019 as against Rs 55.1 crore in the same quarter last year.

The airline said that its stand-alone profit from Air Transport Services (airline) was Rs 115 crore.

“Further, this profit is after a non-cash forex charge on account of IND-AS116 of INR 7.59 billion without which the profit would have been Rs 1.9 billion,” it said in the result statement.

According to the airline’s auditor: “The company has initiated the process of claims on the aircraft manufacturer towards costs and losses, which are currently under discussion.”

“… Certain costs aggregating Rs 5.37 billion (including Rs 2,46 billion recorded in the quarter ended December 31, 2019), have been recognised as other income during the nine-month period which ended December 31, 2019… management is confident of collection of the above income recognised by the company,” the auditor said in the Q3 results report.

Apart from a monetary aspect, the compensation package might also include a simulator-based pilot’s training centre in India and other deliverables in terms of cheaper service packages for the airline’s fleet.

The airline has a firm order of more than 150 Max. Its international expansion plan is heavily dependent on the early return of the aircraft.

Moreover, the airline expects the 737 Max to be re-certified for service by Q2 FY21. The aircraft has been grounded around the world after two crashes, since last year.

Presently, SpiceJet’s fleet stands at 119. It received two more aircraft recently on wet lease. Once re-certified, the airline will be able to get 30 or more 737 Maxs immediately.

Furthermore, the 737 Max will allow the airline to retire some old fuel guzzlers, leading to higher saving margins.

SpiceJet had placed an order for 225 Maxs in 2017, while it has a firm order of more than 150 of these aircraft.

Additionally, Koteshwar expects the airline will be able to clock healthy growth from Q2 FY21 with a rise in capacity as the economy has entered into a recovery phase after facing the worst impact of a slowdown.

At present, SpiceJet operates 600 average daily flights to 63 stations, including 54 domestic and nine international destinations.