Go First insolvency will impact investor confidence: SpiceJet's Ajay Singh

Go First’s decision to file for bankruptcy proceedings has again highlighted the need for reforms in the sector, including bringing aviation turbine fuel (ATF) under the goods and services tax (GST), says SpiceJet Chairman and Managing Director and President of the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Ajay Singh. In an interview with Nikesh Singh and Arup Roychoudhury, Singh says SpiceJet had no issues with hardware suppliers, and it used funds under the Emergency Credit Line Guarantee Scheme (ECLGS) to bring 25 planes back into operational service. Edited excerpts:

What are your thoughts on Go First’s insolvency plea?

The factors behind the Go First crisis were beyond its control, which it enumerated in the press release. We hope that it can go through this resolution process and bounce back strongly.

Every time an event of this sort happens it’s not good for the sector. Such incidents raise questions on the sector's resilience. We want a strong and viable sector. Some issues have been addressed to some extent, but a little more needs to be done.

What are the structural issues in the aviation sector?

ATF needs to be a part of GST. This is a GST Council issue and we have brought this to the attention of the participants. But in the meanwhile, the central government, and especially the civil aviation minister, has worked hard in getting states to reduce VAT on ATF and 19 states have done it. Hopefully the rest of the states will also lower VAT.

Also, it really is time for India to create its own international aviation hubs. There are many hubs in West Asia and East Asia. We have an opportunity now with Air India becoming stronger in private hands, ordering these large numbers of wide-body aircraft, where we can build hubs enabling direct flights from India to different parts of the world.

Would you like the GST Council to include petroleum products under GST?

ATF is a very small part of the petroleum basket. Bunker oil used in ships is already a part of GST, and therefore surely you can have aviation fuel also under it.

What more needs to be done from the engine manufacturers’ side?

They need to provide engines on time. It seems Go First needed engines and the manufacturer failed to provide them. The question is how can a large part of your fleet be grounded because of a lack of engines.

Is SpiceJet facing any problems with Boeing or engine providers?

We have no specific issues. We are building back our fleet. A large part of the fleet was grounded during Covid. As we announced on Wednesday, we are putting 25 aircraft back in the air. We are also trying to lease more aircraft to address the current demand. Funds provided under ECLGS will be used to put these aircraft back at a cost of around Rs 400 crore. We got a little over Rs 1,000 crore under ECLGS. Many planes coming back will be deployed to smaller destinations and non-metros.

What are your views on fare discipline in the sector?

Fare discipline has improved. Since one of the public airlines is now in private hands there is greater consolidation. On average, fares have become more rational than they used to be and comparatively cheaper than in advanced nations. But our cost is high because of fuel. We need a strong and financially viable aviation sector. 

What impact do you think Go First’s insolvency will have on investor sentiment?

Every time such an incident occurs, there is going to be a hit to investor sentiment. We have to show performance. Demand is high and yields are much higher than they used to be.

Do you plan to raise funds for Spice Xpress?

Spice Xpress will raise its own funds. It will expand with more plane orders, which will be announced soon. There will be separate plans for the company and funds issued for that company will only be used by it.

Do you have any plans to raise funds from other sources?

We have plans in the pipeline and we will also announce other investors like Carlyle.   

What are your views on private sector capex?

It’s a matter of time. It’s already starting to change in my view. The demand-pull is so high now. For example, on April 30 in the aviation sector, we flew 456,000 passengers, which is a record. The private sector has no choice but to induct aircraft. I think the aviation, tourism, and hospitality sectors will see a lot of investment. There is clearly a mismatch between demand and supply.