SpiceJet Q3 profit rises 23% on aggressive accounting

MUMBAI: Low fare carrier SpiceJet posted a 23% increase in consolidated net profit for the October-December quarter on income it recognised on expected compensation from plane maker Boeing for grounding its 737 Max planes.

The airline posted a net profit of Rs 78.2 crore up from Rs 63.5 crore a year earlier.

In an instance of what the airline’s finance chief acknowledged as “aggressive accounting” the airline’s net profit was propped up by other income of Rs 270.2 crore, up five times on year. Without the other income, the airline would have posted a loss for the quarter.

The consolidated numbers included earnings from its air transport as well as freighter and logistics segment. SpiceJet’s air transport business posted a net profit of Rs 115 crore, while its freight and logistics business posted a loss of Rs 41.8 crore, pulling down overall net profit.

In a note, under its profit and loss account, the company clarified that certain costs including “aircraft and supplement lease rentals and certain other identified expenses relating” to the grounded planes were recognised as other income.

SpiceJet has been recognising these claims since the last two quarters but has significantly enhanced the recognised amount for October-December.

Global aviation authorities grounded the Max planes in March 2019 following two plane crashes—of flights operated by Indonesia’s Lion Air and Ethiopia’s flag carrier Ethiopian Airlines—in the span of five months.

SpiceJet had to ground 13 Max planes.

“In our view, there is no virtual certainty to recognise such other income..” said the company’s auditors SR Batliboi & Associates in a note.

They said that the company would have incurred a loss of Rs 173.2 crore for the quarter and Rs 665 crore for the nine months ended December 31, without the other income. Accumulated loss would be higher by Rs 537.2 crore.

“I agree this is aggressive accounting,” said the airline’s finance chief Kiran Koteshwar.

He added that this was done on the basis of a compensation “offer” from plane maker Boeing to make good the costs the airline has incurred on lease rentals, salaries and maintenance on the grounded planes while not earning anything from them. He added that discussions are still on and the airline hopes to get some compensation by March end. He said he expects the 737 Maxes to start flying by the middle of 2020.

SpiceJet’s revenue increased 47% to Rs 3,656 crore on the basis of a 59% increase in capacity. But its passenger revenue per available seat kilometre (RASK) decreased by 8% to Rs 3.44.