SpiceJet kicks off cargo business sale; valuation at Rs 2,500 crore

SpiceJet, India’s second-largest private airline, kicked off the process of hiving off its logistics business to its subsidiary SpiceXpress as it looks to raise much-needed capital. On Tuesday, the company sought its shareholders’ approval to complete the process and to raise up to Rs 2,500 crore via a qualified institutions placement (QIP). 
 
It is in talks with multiple private equity investors as it tries to sell shares in the logistics arm to raise money.
 
While sources in the airline had earlier indicated that they value the business at $1 billion, the company on Tuesday pegged it at Rs 2,555.77 crore based on an independent valuation.
 
People aware of SpiceJet’s plan indicated that investors have made it clear that they want the cargo business to be at an arm’s length from the passenger business. “Prospective investors wanted ring fencing of the cargo and passenger businesses,” said a person aware of the development.
 
The airline has also approached the Ministry of Civil Aviation for a new Air Operator Permit for the cargo arm and has also set up a management separate from the passenger business.
 
However, the sources added that the airline has to seek multiple approvals, including from lenders. The airline said it expects SpiceXpress to operate as a separate entity upon transfer of business on or around October 1.

With the passenger business severely impacted because of Covid-19, the logistics business has virtually been a lifeline for the airline. SpiceXpress earned a net profit of Rs 30 crore, with revenue for the segment up 285 per cent to Rs 473 crore in Q1FY22 from Rs 166 crore the previous year. With a fleet of 20 aircraft, including four wide-body aircraft on wet lease and passenger aircraft converted to carry cargo, a far cry from just five aircraft a year ago.
 
“Stake sale in cargo can get good funding for the airline as freighter business has remained on upswing despite a lot of belly capacity coming back. They are seeking a premium based on the assumption that if with 5 per cent market share the company can earn Rs 1,000 crore a quarter, they can double it in next one year,” said a banker close to the negotiations.
 
There have been regulatory changes too. The government has changed a decade-old rule that gave free access to foreign airlines to carry cargo from India. In December, it restricted non-scheduled cargo operations by foreign airlines to six airports — Bengaluru, Chennai, Delhi, Kolkata, Hyderabad, and Mumbai.
 
“As Indian airlines never concentrated on cargo, foreign airlines monopolised the Indian market, operating large aircraft like Boeing 777, Airbus A380. It’s impossible to fill up such large aircraft on a direct route, say from Dubai to Chennai. So, an airline like Cathay Pacific used to operate a Boeing 747 Hong Kong- Delhi-Bengaluru and then return to Hong Kong. It helped to fill such large aircraft. Now such pairing of destinations is not allowed, a move that would benefit Indian airlines,” explained an airline executive.
 
Analysts tracking the company are eagerly waiting for some certainty on the liquidity raising measures as the airline’s cash balance is very thin. “The key focus would be around its liquidity. The company has almost no liquidity and ended the quarter to March (Q4FY21) with free cash of only Rs 35.5 crore and restricted cash of Rs 140 crore,” analysts at HSBC noted in a recent report.