SpiceJet (SG, Delhi International) has proposed to turn lessors into potential investors in a debt-to-equity scheme aimed at clearing INR25 billion rupees (USD302 million) in unpaid aircraft lease payments, reports India's Economic Times.

If lessors agree, the plan involves a two-step transaction: The company will first transfer its cargo undertaking to a newly created subsidiary, SpiceXpress, which will then issue compulsorily convertible debentures (CCDs) to the parent, Then, SpiceJet will offer lessors the option to swap lease payments with the CCDs. This will make them investors in the cargo arm with the option of taking an equity stake in it at a future date, according to well-placed unnamed sources cited by the newspaper.

According to the latest financial data, SpiceJet had short-term and long-term lease liabilities totalling INR70 billion (USD845.6 million) in the quarter that ended September 2022. However, not all of these are due for payment. The sources said the plan was to clear the immediate dues of the lessors amounting to INR25 billion (USD302 million). The proposal has been made to about ten of them.

SpiceJet was not immediately available for comment.

In his message to shareholders in the airline's annual report for FY2021-22, Chairman and Managing Director Ajay Singh said the company had "completed a series of settlements with most of the major partners, including manufacturers and lessors".

Singh confirmed the company recently received the shareholders' approval for the transfer of its logistics business to SpiceXpress. The process of hiving off the cargo and logistics platform would be completed soon, which would help significantly to strengthen the company's balance sheet and wipe out the negative net worth of the business. "We expect to see improvement in operations, and restructuring benefits will be visible starting Q3 FY2023. We are well placed to enter a new phase of accelerated growth to meet resurgent demand from passenger and cargo customers," he said.

"SpiceJet has engaged with investment bankers to raise up to USD200 million in order to achieve our future plans. Additionally, the enhancement of the Emergency Credit Line Guarantee Scheme (ECLGS) limit to INR15 billion (USD185 million) by the government will go a long way in providing much-needed stability to the sector. The infusion of additional funds will help SpiceJet normalise its obligations, unground its fleet and induct new planes into our fleet. This will go a long way in rejuvenating the airline as the induction of new planes and operation of a younger fleet will increase operational efficiency and support cash-positive operations," he added.

SpiceJet has spent much of 2022 fending off insolvency claims from disgruntled creditors.

As reported in the three months to September 30, SpiceJet raised INR6 billion (USD74 million) through the ECLGS scheme.

SpiceXpress recently posted revenues of INR20.6 billion (USD252.8 million) in the three months to September 30, 2022, and a net profit of INR2.12 billion (USD26 million) from transporting 27,675 tonnes of cargo. In contrast, SpiceJet reported a multi-billion quarterly net loss.