In a bid to save the beleaguered airline company SpiceJet , the Civil Aviation Ministry has allowed banks and financial institutions to lend up to Rs 600 crore. In addition, it can now offer tickets until March 31, 2015 that was forbidden earlier this month.
The aviation ministry will request various oil marketing companies (OMCs) to give credit to the cash-strapped company for upto 15 days, as a passing reprieve.
In an interview to CNBC-TV18, Kapil Kaul, south Asia chief executive of aviation consultancy Centre for Asia Pacific Aviation (CAPA) said he is happy that the government is pushing banks to rescue Spicejet, as it was a bad decision to stop advance bookings.
Furthermore, the Civil Aviation Ministry will also request Finance Ministry to permit SpiceJet to go for External Commercial Borrowing for working capital.
Below is the verbatim transcript of the interview:
Q: Indian banks have been requested to give working capital loans based on the assurances of the promoter, the ministry goes on to say that banks or financial institutions can lend up to Rs 600 crore backed by a personal guarantee of the Chairman of SpiceJet also the ministry of finance will be requested to permit external commercial borrowing for working capital as a special dispensation. So, there is the bail out. They were denying it all this while and the government has stepped in with pretty much a pretty much a bailout package.
A: If you look at it, the promoters have been wanting to and trying to convince the banks to give them the money against some strong collaterals but I don't think that was forthcoming. So the government's push to the banks is basically purely a commercial decision of the banks where the government is basically pushing them to finally accept it.
Q: Yes, commercial decision. If the government is nudging you not so subtly to go through with providing a working capital loan then can it really then be seen as a commercial decision?
A: I agree with you but if the collaterals are liquid collaterals and the value of the collaterals are very high, I see this is a pure commercial decision. The fact that it has to go to an airline would perhaps be the challenge with the banks but if the government is trying to push them forward to conclude it, it will still be a commercial decision. It will still be backed by significant collaterals and personal guarantee but unfortunately, maybe the promoter was not being able to convince the banks to really go ahead in spite of offering the collaterals. Now if the government is making them do it, it will still be a commercial decision and I am happy the government is pushing that because it will ultimately mean a lot to the airline if this goes through.
Q: Earlier today, we were sceptical about this extension being given to take bookings to March 31st because who would want to book in advance with an airline where you don't really have any visibility of it's being able to fly at all, but now it seems to be a multi-pronged approach that the government has adopted. So do you believe that the relief that SpiceJet now gets will perhaps be more sort of relevant?
A: I would. The government's overall response, which now seems to be helpful because they took some couple of bad decisions earlier. One was the restrictions of forward bookings and I believe that was a very negative and bad decision. It hurt the airline very significantly and they have corrected it.
As you rightly said the confidence from the customer standpoint and the travel trade standpoint is very low. I am not sure how it will be helpful but overall the government's response is positive, this is the way the government should act. You don't give them undo favours but don't act in a manner that should aid the closure of an airline, so the correction is welcome from the government's stand point.
But overall, if the money doesn't come it is ultimately all about very large amount of capitalisation coming in immediately because if you can't repair your operational capability which will get further impacted as leasing companies will aggressively push for reposition so it needs money and if the money comes in that will basically help them a bit, but without money there is not game, it is a closed chapter.
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