The timing to re-enter SpiceJet is pretty good, said its co-founder Ajay Singh. In an exclusive interview to CNBC-TV18's Shereen Bhan, Singh said the airline has provided confidential revival plan to aviation ministry and the lawyers are working on issues to come up with the authority.
Beleaguered budget carrier SpiceJet announced its decision to transfer the ownership, management and control of the company to Singh from Sun Group chairman Kalanithi Maran and Kal Airways. Maran and Kal together held 53.5 percent in Spice while Singh had 4.5 percent stake.
Singh said he is awaiting aviation ministry's orders with reference to the deal, while refusing to comment on whether the company will seek open offer exemption. "We will make an open offer if Sebi asks us to."
Stating that he is not at liberty to disclose other investors' names yet, Singh said there are more than one investor involved in the process and that legal modalities are being worked on ownership change. He said SpiceJet's vendors and partners have been infusing money into the carrier.
Investors are in touch with SpiceJet. The foreign shareholding will depend on structure of revival plan and will comply with FDI regulations, Singh said, adding that he assumes it to be around 25-49 percent.
"The revival plan includes cutting costs, improving revenue and margins. We hope the ministry will move quickly to ratify it," he said.
Below is the transcript of Ajay Singh's interview with CNBC-TV18's Shereen Bhan.
Q: Where are you getting the money?
A: Clearly as you know today SpiceJet has provided to the Ministry of Civil Aviation the competent authority a plan for revival and restructuring. There are certain details in that plan which are confidential at this time and I would ask you to respect the non-disclosures and confidentiality that we have to still live by.
Q: What made you want to get into SpiceJet at this point in time? The airline has been struggling to survive, it is an highly competitive market. You have got new players entering the market with the exception of the fact that crude prices have come off very sharply it continues to be an extremely difficult time for aviation in this country, taxes are high, airport charges are high, what made you want to reenter aviation?
A: The timing is pretty good because as you mentioned oil prices are at a historic low. Like you were just a brief while ago the rupee seems to be appreciating which is great for the airline business. There is a very supportive government which we believe will promote growth over the next several years in the Indian economy. With growth comes great deal of aviation traffic.
There are some structural problems in this industry which make it a pretty high cost environment. We are quite confident that this new government will be very supportive of aviation which is a critical infrastructure industry. Therefore this is a good time to be in this space.
The number of Indians that are flying today is still a very miniscule 3 percent. Clearly that number is bound to grow. So, if you can get the cost down and get back to a model where costs are low and efficiency is high it is a good time to be in this space.
Importantly also besides the fact that obviously valuation is low and there can be significant shareholder return I also believe that this is something which is in the public good because failure of a significant airline like SpiceJet increases the burden on consumers who have to pay higher fares. It obviously impacts employees and families of people who lose jobs. Importantly I think it also impacts the investment climate both in aviation and the larger Indian economy.
Q: As part of the plan that you have submitted and I know negotiations and talks between you and the Civil Aviation Ministry have been on for a while now. Our understanding is that you have already either moved the market regulator or are likely to move the market regulator seeking an exemption from making an open offer. On what basis are you likely to seek that exemption if you haven't already, have you heard from the market regulator on the possibility of not having to make an open offer even though there is a change of ownership and control?
A: Well, at this time the lawyers are working on those issues. As required by law, SpiceJet and its board today have made a certain decision which has been intimated to the stock exchange. In terms of the aviation rules, today the competent authority which is this case is the Ministry of Civil aviation has been provided a plan of revival and it is up to them now first to take a call on approving and passing appropriate orders on that scheme.
Q: It is not just the civil aviation's nod that you will require, you will require the market regulator's go ahead as well. Under the takeover regulations and the takeover guidelines when there is a change of ownership and control an open offer is necessary. Have you already reached out to SEBI, has there been any conversation, what are your lawyers telling you, on what principle are you going to be seeking an exemption, if you haven't sought one already?
A: Well, I do not want to comment on that this time. This is an issue which is being looked at by the lawyers and of course if we approach any authority and that needs to be disclosed, it will be done.
Q: So you will move Sebi seeking an exemption from making an open offer even though you will take over management and control from the Marans. That plan is underway. You are speaking with your lawyers, you haven't moved the regulator just yet because that board decision has just been taken but you intend to seek an exemption from making the open offer.
A: I do not want to comment on that because this is still the subject of legal discussion and will depend on legal advice. If we need to approach the regulator and if we need to approach Sebi, we will.
Q: You will need to approach, there is no if and but in that situation. It is a listed company, you will need to approach the regulator, if the regulator says you have to make an open offer is that a deal breaker?
A: Well if the regulator says we have to make an open offer then we will make an open offer.
Q: Have you had any conversation with the ministry of Civil Aviation on the possibility of the government perhaps also supporting your case for not making an open offer. Has the Civil Aviation Ministry had any conversation with you on a possible relaxation of the takeover guidelines as far as SpiceJet is concerned?
A: We have submitted a scheme for revival as I said and it is for the ministry to pass orders on that scheme. The contents on that scheme are confidential. We will comment on the scheme itself and on the issues that you are raising at an appropriate time. At this time we have just embarked upon the road to try and see if we can find a plan to revive this airline and appropriate disclosures will be made and you will be informed as soon as those are made.
Q: Has the open offer discussion been had with the Civil Aviation Ministry. Don't tell me what you intend to do but has this conversation been raised with the Civil Aviation Ministry?
A: The open offer discussion is something which is between the acquirers and their legal counsel at this time. As and when required the regulators will be approached and their directions followed.
Q: Can you give us clarity because there have been all kinds of rumours of how much money you have already put into SpiceJet in the last couple of weeks, since the time that your conversation with the promoters of SpiceJet started. At the end of this transaction what will your shareholding be in SpiceJet?
A: At this time all I can say is that the scheme has been given to the ministry and we are awaiting their orders. I am not in a position to disclose the contents of that scheme or the financial arrangements. This will be done as soon as we possibly can do it which should be sometime early next week.
Q: Can you tell us how much money you have already infused into SpiceJet?
A: We have not infused any money into SpiceJet. We had no locus to infuse any money into SpiceJet at this time. We were neither shareholders of this company nor were we lenders to the company. Money was infused into SpiceJet by SpiceJet partners and vendors and that is where things are. There is no money which has been infused by us directly into this company.
Q: There is a lot of talk and rumours about who you are likely to be partnering with. There are names of private equity players, global private equity players that are doing the rounds. Are you going to be backed by a consortium as you try and take this transaction through? Can you give us some sense of where you are getting the money to fund this deal?
A: The arrangement with investors is subject to non-disclosure agreements. Therefore I cannot give you the names. I know there are lots of names which have been floating around.
Q: Don't give us the names, tell us is there one private equity player or is there more than one private equity player? Are there any domestic investors involved, give us a sense of how many people are involved in this consortium?
A: There is more than one investor involved in this whole process. There is diligence going on, that process will take a period of time and we hope to complete it as soon as we possibly can.
Q: Is it all foreign players or are there domestic investors as well and post this transaction being complete what will the foreign direct investment or the foreign shareholding be in SpiceJet, give me a ballpark?
A: At this time investors are in touch with SpiceJet and are looking to invest in SpiceJet. In terms of what the foreign shareholding is going to be obviously it has to comply with the current FDI regulations. So, it cannot exceed 49 percent in any case.
Q: I know what the cap is but I am asking you how much do you believe the foreign shareholding will be post this transaction?
A: It depends on what the final structure is eventually. My expectation is that it will be anywhere between 25 and 49 percent.
Q: You have submitted your plan to the civil aviation ministry this afternoon. However over the last several weeks you have been in conversation with the civil aviation ministry putting together the recapitalisation and the revival plan. In your assessment how soon are we likely to see the ministry give you the go ahead for this transaction?
A: It depends entirely on them. From SpiceJet's side SpiceJet has given a plan to them. It really depends on them on how quickly they move. We hope that they can move quickly because there is lots of work to do at SpiceJet.
Q: At this point in time to keep operations up and running you have already cut down your fleet capacity significantly, specifically your Boeing fleet has been cut down by almost half. To keep the operations up and running what is the immediate infusion that will be required?
A: These are details which we will disclose at an appropriate time. Clearly, the idea is to put SpiceJet back on its feet. That will happen in a variety of ways, reducing costs, improving revenues and margins and clearly infusing a significant amount of money into the company to ensure that the past liabilities are paid off.
Q: When you say significant infusion will that take into consideration the entire liability that currently sits on the SpiceJet books?
A: Again that depends on what the final plan is. It is not necessary to pay down every single piece of that liability. Some of those liabilities are somewhat longer term in nature. It is not that in one fell swoop you will completely clean the balance sheet. However the amounts of money that SpiceJet owes to various people including it's vendors a lot of that will get paid. So, it will be a significant infusion.
Q: Has there been any further assurance given to you from the civil aviation ministry that the relaxed period that has been given to SpiceJet from paying airport charges to the Airports Authority of India (AAI), from paying oil marketing companies (OMCs), has that period been extended and if it has by how much?
A: At this time there is no specific assurance of anybody. The environment has been extremely supportive. Everybody wants to see that SpiceJet does not fail. Therefore, I think everybody is trying to do what best they can to ensure that SpiceJet does not fail. There are no specific assurances given by anybody.
Q: It is very clear that as part of the restructuring of the operations job losses are going to be inevitable. Can you give us some sense of what the job loss number is likely to be because as I pointed out my understanding is it is 100 people to every aircraft? You have halved your Boeing fleet. So, would it be fair to say that about 2000 plus people are going to face the axe on account of the restructuring operations that you will undertake?
A: The airline has to make economic sense and therefore if certain right sizing is required it will be done. However, you must remember that the fleet will not remain at this number. Clearly there will be an addition to the existing fleet in a fairly short period of time and that will be part of SpiceJet's plan to ensure that the fleet goes up to an economically viable number.
Q: What is going to be the strategy now in terms of route rationalisation, fleet as well as well as cost restructuring because costs have been a significant dampener as far as the SpiceJet story is concerned. How soon do you believe you are going to be able to turn the operations around? What is the timeline that you have presented to the ministry in your plan?
A: SpiceJet was one of the lowest cost carriers when it started operations. And obviously an extremely important part of what we are about to do is to bring the cost down to a competitive level. We also need to work hard to ensure that revenues increase. We need to also ensure that we revert to a low cost airline model which is essentially trying to have a network which is far more contained than it currently seems to be so you have fewer stations and you have high frequencies into those stations to keep costs low. So, it is essentially back to basics for SpiceJet.
Q: So besides the nod from the civil aviation ministry and then I am assuming you need to take the market regulator's approval on whether you need to make an open offer or not, what are the other regulatory approvals that you will require before you stitch this deal up? Will you need to go to the Foreign Investment Promotion Board (FIPB) for instance as well? Assuming you need to go to the Ministry of Home affairs to get the director's clearances and so on and so forth. Can you take us through all the clearances that are now required to be put in place before you stitch this up?
A: Well, as far as I know the clearance that we require in addition to you mentioned would be the security clearance for new directors. In terms of FIPB approvals at this time they are not envisaged. As and when we have a final investment plan, we will see what other approvals are required.
Q: Before I let you go how confident do feel that perhaps by the end of next week you are going to be able to stitch this up and move Sebi for further approvals on this matter and how soon do you believe you will be able to stitch things up on the end of your investors as well because that is where the money is coming from essentially?
A: This is obviously work in progress. We hope to do it sooner rather than later. It is tough to give you an exact timeline but as I said it is a job worth doing and we are trying to do it to the best of our ability. We will obviously let you know as soon as we have more concrete details to share with you.
Q: But the investors part of it, regulatory approvals you have no control over but investors, by when do you expect to close in on the investors. I know you are talking to several people as you just confirmed here both foreign and domestic by when do you hope to close that loop?
A: We hope to close that loop in a short period of time.
Q: There have been all kinds of numbers that have bane doing the round; an immediate infusion of USD 250 million will be required to keep the airline up and running and so on and so forth. Is that in the vicinity of the right number?
A: No, I don't want to comment on the numbers at all.
