Budget carrier SpiceJet Ltd posted its record net profit for the June quarter at Rs 263 crore on higher revenue from operations and has started factoring in the minimum reimbursements that it expects from Boeing under the segment of other income.
"We have sent a formal note to Boeing whereby we have asked for reimbursements for lease rentals, maintenance, crew salaries for the MAX crew. The discussions are ongoing but after legal assessment we are confident that while the final settlement amount will be much more, this is the minimum amount (Rs 114 crore) that we should receive from Boeing. Hence, we have included this in other income to offset the same amount that we have included under expenditure," Chief Financial Officer Kiran Koteshwar said.
"So, even if we didn't have these 13 planes grounded, even then we would have made the same profits or even more," Koteshwar added.
While the amount of lease rentals included in the other income is Rs 114 crore for the quarter, the same amount has been offset under the expenditure segment in the categories of finance cost and depreciation and amortisation cost, according to the new accounting standards of IND AS 116 which came into effect from April 1, Koteshwar added.
"The figure of Rs 64.6 crore under lease rentals is on those aircraft which have not been capitalised and for those lease rentals... the leases end this year so.....The Rs 64 crore is not linked to Rs 114 crore... it is in the depreciation and amortisation cost of Rs 377 crore and in finance cost of Rs 124 crore," Rao said.
The airline reported quarterly net profit at Rs 261.7 crore and it had posted a net loss of Rs 35.5 crore in the same quarter last year.
"Despite its inability to undertake revenue operations, the company continues to incur various costs with respect to these aircraft. As a result of the above, and the uncertainty in timing of return to operations of these aircraft, the company has initiated the process of seeking reimbursements from the aircraft manufacturer, of ascertained costs and losses (including opportunity losses) incurred by the company," the airline said in footnotes of its balance sheet.
While the company continues to work with Boeing to ensure timely return of MAX aircraft, the management is confident of a "favourable outcome" with regard to these reimbursements based on its assessment and legal advice, the airline said
"Consequently, aircraft and supplemental lease rentals of Rs I, 141.4 million (Rs 114 crore) incurred in the quarter ended June 30, 2019 relating to Boeing 737 MAX aircraft have been recognised as other income during the current quarter," SpiceJet said, adding that the auditors have qualified their limited review report in this regard.
MAX aircraft, the largest selling model of Boeing, was grounded worldwide in March following safety concerns after a second fatal crash in the same aircraft make. The first tragic incident took place in October 2018 involving a Lion Air flight followed by another fatal crash of Ethiopian Airlines flight in March.
Since the grounding, Boeing has been working in an upgrade for its flight control system called Maneuvering characteristics augmentation system. However, on June 27, the US Aviation regulator Federal Aviation Administration found a potential risk in the MAX family of aircraft and asked the company to mitigate it and said that it will lift the ban only when it deems that it is safe to do so.
Officials at the Indian regulator DGCA have also reiterated recently that there is no resolution in sight for this issue and there is uncertainty regarding the exact timeline for the aircraft's service resumption.
Earlier, SpiceJet had estimated that the grounded Boeing 737 MAX aircraft would resume normal operations by July or August but today said that there is uncertainty around the exact date.
"With the current developments and uncertainty around the exact month of resumption, the company plans to cater to the winter season by inducting 5‐10 Boeing 737 NG aircraft and 3 Q400 aircraft during October," SpiceJet said.
SpiceJet is the only active customer of Boeing MAX aircraft in India with 13 planes in its fleet and a total order-book of 225 such aircraft including firm orders for 155 and options to buy 50. The airline currently has 107 aircraft in its fleet.Total revenue from operations for the airline during the quarter stood at Rs 3,003 crore as against Rs 2,222 crore last year. Other income for the quarter stood at Rs 143 crore as compared to Rs 33 crore last year. The airline's expenses rose 29.5 percent on year to Rs 2,883 crore.