The year 2014 has been a good one for the American aero major Boeing (BA, Financial). The company has bagged several orders and has delivered numerous jets. The company has a sound backlog waiting to keep it busy for a long time. Or is it? Analysts and industry experts are a little worried about all the turmoil that’s going on at SpiceJet, a prominent name in India. The airline is having trouble to continue its regular course of business and in a situation such as this many are questioning how safe is the $4 billion worth order for 42 Boeing 737 Max jets that the carrier placed this year in March? Let’s take a look.
Source: Wikimedia
SpiceJet swimming in troubled waters
DNAIndia commented, “Its [SpiceJet’s] wings have been clipped and its financial wounds are bleeding it… Current cash flows are just not enough to sustain it for long.” SpiceJet’s miseries seem to be endless as the carrier battles to survive. The Directorate General of Civil Aviation (DGCA) has restricted the airline from taking bookings beyond a month and has also cancelled more than 180 of its landing and parking slots. While many believe a step such as this can damage the airline’s reputation and also result in loss of trust, many also believe this was necessary to protect the interest of the buyers. The carrier has reduced its fleet size and cancelled as much as 1,800 flights till December 2014, and now is offering heavy discounts on various routes within India to attract customers. The measures are helping the company reduce its monthly expenses on fleet lease.
Boeing confident about SpiceJet turnarund
The Indian carrier has reduced its Boeing 737 fleet from 37 planes to 22 planes in the last couple of months and this has got the analysts worried. But Boeing is not. In fact the aircraft maker seems to be pretty confident that things will turn better for SpiceJet in sometime. Dinesh Keskar, Boeing’s VP-Sales for Asia Pacific and India, told The Financial Express the company is obviously cautiously optimistic on SpiceJet and the order looks realistic to the jet maker as the distressed-carrier works towards reducing debt and returning to a stronger financial situation. Boeing expects to deliver the first out of the 42 737 Max jets by 2018 end.
Keskar believes the airline is following a strategy that he calls “shrinking now and expanding later”. SpiceJet is cancelling flights and reducing its fleet to curb its expenses. It’s also offering travel between the most profitable destinations only to maximize its returns. A move such as this is fundamental to all businesses. The airline must secure its ground first and later think of expanding. Boeing won’t be delivering the jets before 2018 and thus the carrier has ample time to strengthen its finances. If things work out according to SpiceJet’s turnaround plan, it won’t have to cancel or reduce the order.
