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Your Directors have pleasure in presenting the 31st Annual Report together with the Audited Financial Statements of your Company for the year ended March 31, 2015.
The Company has been in active operations since 2005 with a consistent safety record and as on September 2014 it had grown to become the second largest airline in the country in terms of domestic market share. The Company completed its tenth year of operations on May 23, 2015. The Company as on March 31, 2015 maintained its fleet size to 32 aircraft covering 42 destinations and operating 280 flights per day.
During the year ended March 2015, the Company carried 11.71 million passengers with an average load factor of 81% and a market share of 9.70% for the month of March 2015.
The innovative steps taken by the Company which include, among others, stimulating the market, have not only helped the airline reduce losses year–on–year, it has also helped the Indian aviation market grow much in excess of GDP growth last year, with positive impact for the entire travel industry and surrounding ecosystem, and for the economy as a whole. It is imperative to mention that the Company has been able to achieve 10–11% growth on unit revenues while at the same time reducing the unit cost by 8–9%. Despite the improving operational performance in the Financial Year 2014–15, legacy liabilities that could no longer be deferred coupled with extensive delays in expected funding and a hostile business environment during last fiscal faced by the airline industry, created immense cash flow pressure on the Company. Multiple reasons led to the financial distress of the Company leading to near closure situation in December 2014. This was mainly on account of non–receipt of the expected funding into the Company during the start of Financial Year 2014–15 due to reasons beyond the control of the Company. This consequently resulted in deference of tax liabilities payment (accumulated from the previous financial year), non–payment to key service providers, aircraft lessors and banks. The operating cash flow position in the Financial Year 2014–15 was further distressed due to reduction of available fleet forced upon the Company reducing its ability to generate cash as it had to club its open bookings.
Due to the reasons set out above, the Company suffered deterioration in its financial affairs. While the Company explored various options for funding, investors continued to stay away from the Company.
Consequently, the lack of strategic and other funding led to cash flow pressure and the Company defaulted in the payment obligations to tax authorities, its employees, airport operators, suppliers and other creditors including aircraft lessors.
Such defaults and other circumstances, led to the return of multiple aircraft to lessors thereby causing high number of flight cancellations. The total number of daily flights reduced from 340 during July 2014 to 230 during December 2014 on an average, leading to reduction of revenues. Such cancellations not only resulted in loss of revenue but also in certain circumstances required us to refund amounts.
In light of all of the above and cancellations of flights, in early December 2014, the Directorate General of Civil Aviation ("DGCA"), being the Competent Authority under the provisions of the Aircraft Act, 1937, initiated regulatory actions and imposed restrictions on forward bookings, cancelled slots and announced increased safety surveillance against the Company. The regulatory actions initiated by DGCA led to immediate decline of about 90% of cash inflows creating uncertainty amongst its business partners. This also resulted in operational and fuelling crisis and the Company appealed to DGCA/Ministry of Civil Aviation ("MOCA") for relief.
While, some temporary relief was received from MOCA for continuing the operation for some time, the cash–inflow continued to remain below the normal levels and the impact of the regulatory actions severely affected the cash flow position while the pressure from the creditors continued to mount.
The cumulative effect of the above financial and operational distress resulted in the Company being forced to suspend its operations partially during mid–December 2014.
2. MATERIAL DEVELOPMENTS: REVIVAL AND RECONSTRUCTION OF THE COMPANY
As it can be noted from the facts leading up to the financial distress of the Company, the re–construction and revival of the Company assumed significant importance not only from a commercial and viability perspective but predominantly from a public interest perspective. Given the public interest, employee interest, public and private dues outstanding and to protect the airline and tourism industry, the board of the Company in its meeting held on January 29, 2015 approved the assistance of one of the shareholders and an erstwhile director of the Company, Mr. Ajay Singh (who has held shares in the Company since 2005), to takeover the control and management of the Company from Mr. Kalanithi Maran and Kal Airways Private Limited (the "Previous Promoters") and implement a re–construction and revival plan in order to restore the Company's operations and its previous market position. Mr. Ajay Singh is a first generation entrepreneur and has extensive experience in the information technology and airline operations having successfully contributed to the launch of the Company during the year 2005.
Some of the key indicators which warranted the revival of the Company are as follows:
a) The Company had has over 139,000 shareholders whose value in the equity shares of the Company would have completed eroded;
b) Disruption of over 30,000 passengers every day in addition to 1.7 million passengers who had already made future bookings; thereby causing chaos and unjustly enriching the competitors due to inflated air fares;
c) Livelihood of over 10,000 families associated directly or indirectly with the Company was at stake;
d) Various agencies and stakeholders like trade players, banks, employees, statutory authorities would have incurred substantial losses.
e) Revival of the Company was important for a balanced market competition and to counter the growing risk of dominance by any single player. The Company was the second largest carrier until September 2014, which provides a strong counter balance to the market leader. There was an alarming rise in the air–fares while the Company was forced to suspend its operations partially in mid–December 2014;
f) Failure of the Company to revive from the existing financial distress will vitiate the investment climate in the aviation sector and create a negative perception of the Indian economy;
g) There would be a negative impact on the connectivity to various smaller airports in India, which are serviced by the Company's Bombardier Q400 regional aircraft;
h) Growth and well–being of a larger travel ecosystem i.e. hotels, tourist operators, cab agencies, airports etc which benefitted from the market stimulation brought about by the Company would also be affected;
The Company presented the "Scheme of Reconstruction and Revival for Takeover of Ownership, Management and Control of SpiceJet Limited" (the "Scheme") before the MOCA on January 15, 2015 which detailed the reconstruction and revival plan of the Company by the process of change in control and management of the Company from the Previous Promoters to Mr. Ajay Singh. The Scheme also contemplated infusion of fresh funds into the Company in a phased manner with the objective of supporting the turn–around plan and ensuring that the Company regains its preeminent positioning in the Indian aviation industry. The Scheme presented by the Company was approved by MOCA on January 22, 2015 acting in its capacity as the Competent Authority.
Pursuant to the order of MOCA approving the Scheme and subsequent order of the Competition Commission of India, the entire shareholding of Previous Promoters constituting 58.46% of the equity share capital of the Company was transferred to Mr. Ajay Singh on February 23, 2015.
Revival Plan and Way Forward
As a long term strategy to keep the Company insulated against similar circumstances in the future, the new management under the Chairmanship of Mr. Ajay Singh has undertaken and implemented various measures in revenue and cost management, customer retention and employee welfare immediately upon assuming control of the Company.
Since the change of ownership, management and control, the Company has entered into settlement agreements and deferred payment plans with certain lessors and vendors in respect of past overdue payments. The Company has also discharged its overdue statutory obligations in the last quarter of the Financial Year 2014–15. The Company continues to negotiate with its vendors for settlements, improved commercial terms and better credit facilities, and is in the process of arranging additional working capital finance, as well as by way of trade financing, to improve its short–term liquidity position.
Under the new management the Company will be focusing on increasing efficiency in the areas of customer experience, selling and distribution, revenue management, fleet rationalization, aircraft utilization, capacity deployment in key focus markets, contracts and other costs, to help the Company establish consistent profitable operations and cash flows. The Company is also exploring options to increase its aircraft fleet over the near short term in order to keep up with the demand growth. These measures along with improvement in the macroeconomic conditions for the airline industry in the markets in which the Company operates (such as the recent reduction in ATF prices, economic buoyancy), consistent improvement in capacity utilization and unit revenues, enhancement in ancillary revenues, reduction in unit cost as well as providing additional value added services to customers, are expected to increase operational efficiency and achieve profitability.
While many initiatives have been implemented under the new management there are more being considered for implementation which has not only has provided the much needed cash in the operations but has taken the Company to three successive quarters of profitability (being March 2015, June 2015 and September 2015).
3. BOARD OF DIRECTORS
a) Pursuant to the Share Sale and Purchase Agreement dated January 29, 2015 between the Company, Mr. Kalanithi Maran, Kal Airways Private Limited and Mr. Ajay Singh, the entire shareholding of erstwhile Promoters (i.e. Mr. Kalanithi Maran and Kal Airways Private Limited) has been transferred to Mr. Ajay Singh and consequently Mr. Kalanithi Maran, Mrs. Kavery Kalanithi and Mr. S. Natrajhen resigned from the Board of the Company with effect from January 29, 2015.
b) The Company has received necessary declaration from each Independent Director under Section 149(6) of the Companies Act, 2013, that he meets the criteria of independence laid down in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.
c) Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board of Directors has undertaken an evaluation of its own performance, the performance of its Committees and of all the individual Directors based on various parameters relating to roles, responsibilities and obligations of the Board, effectiveness of its functioning, contribution of Directors at meetings and the functioning of its Committees.
d) Mr. Ajay Singh and Mrs. Shiwani Singh were appointed as additional directors on the Board of the Company on May 21, 2015 and shall hold office upto the date of ensuing Annual General Meeting. The Company has received notice 160 of the Companies Act, 2013 proposing their candidature and the members are requested to consider the same.
e) Dr. Harsha Vardhana Singh was appointed as additional directors on the Board of the Company on May 21, 2015. Subsequently, Dr. Singh has resigned effective November 17, 2015.
f) Mr. Sasiprabhu was appointed as additional directors on the Board of the Company on December 1, 2015 and shall hold office upto the date of ensuing annual general meeting. The Company has received notice 160 of the Companies Act, 2013 proposing his candidature and the members are requested to consider the same.
g) Mr. M. K. Harinarayanan (Independent Director) and Mr. J. Ravindran (Independent Director) resigned from the directorship of the Company with effect from May 28, 2015 and May 29, 2015 respectively.
h) Mr. Nicholas Martin Paul (Independent Director) and Mr. R. Ravivenkatesh (Independent Director) resigned from the directorship of Company with effect from September 21, 2015.
i) The Company is in the process of inducting additional independent directors to have adequate mix of executive and independent director, subject to security clearance of applicable authority.
j) The Board has, on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management and their remuneration. Details of the Remuneration Policy are provided in the Corporate Governance Report.
4. PARTICULARS OF CONTRACTS OR ARRANGEMENT MADE WITH RELATED PARTIES
All related party transactions that were entered into during the financial year under review were on arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company which may have a potential conflict with the interest of the Company.
All Related Party Transactions have been placed before the Audit Committee and Board for their approval.
Particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013, in prescribed Form AOC–2, is annexed as "Annexure – A" to the Board's Report.
5. STATUTORY AUDITORS
a) The Statutory Auditors, M/s S.R. Batliboi & Associates LLP, Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office, if re–appointed.
b) In accordance with Section 134 (3) (f) of the Companies Act, 2013, information and explanations to various comments made by the Auditors in their Report to the Members are mentioned in the Notes to the Accounts, which form part of the Balance Sheet for the year ended March 31, 2015.
6. SECRETARIAL AUDIT
a) Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company appointed M/s. Lakshmmi Subramanian & Associates, Practicing Company Secretary to undertake the Secretarial Audit of the Company for financial year ended on March 31, 2015. The Report of the Secretarial Auditor is annexed as "Annexure – B" to the Board's Report.
b) In accordance with Section 134 (3) (f) of the Companies Act, 2013, response (wherever necessary) to the observations in the Secretarial Audit Report are as under:
(i) The Company had one woman director on its Board since November 15, 2010 who resigned on January 29, 2015. Immediately after her resignation, the Company filed an application with Ministry of Civil Aviation as per Civil Aviation Requirements, for security clearance of Mrs. Shiwani Singh for her appointment as director and appointed her as director on May 21, 2015 after said security clearance (refer Para 1 of the observation of Secretarial Audit Report).
(ii) The Company shall be making offer for issue of CRPS in due course subject to compliance of provisions of Companies Act, 2013 and other applicable rules and regulations (refer Para 3 of the observation of Secretarial Audit Report).
(iii) Subsequent to the end of Financial Year 2014–15, the Company has appointed Mr. Ajay Singh as Managing Director within the prescribed time limit of the Companies Act, 2013 (refer Para 5 of the observation of Secretarial Audit Report).
7. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186
The Company has not granted any loan, given guarantee or security or made investment under the provisions of Section 186 of the Companies Act, 2013 during the financial year under review.
8. EXTRACT OF ANNUAL RETURN
In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the annual return in the prescribed format is annexed as "Annexure – C" to the Board's Report.
9. NUMBER OF MEETINGS OF THE BOARD
The Board met seven times during the financial year, the details of which are given in the Corporate Governance Report that forms part of this Annual Report. The intervening gap between any two meetings was within the period prescribed under the Companies Act, 2013.
10. DIRECTORS' RESPONSIBILITY STATEMENT
In terms of Section 134(5) of the Companies Act, 2013, in relation to the Audited Financial Statements of the Company for year ended March 31, 2015, the Directors of your Company hereby state that:
a) in the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period;
c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d) the Directors have prepared the Annual Accounts of the Company on a 'going concern' basis;
e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and
f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
11. CORPORATE GOVERNANCE
Pursuant to Clause 49 of the Listing Agreement, Management Discussion and Analysis, Corporate Governance Report and Practicing Company Secretary's Certificate regarding Compliance with the Code of Corporate Governance are made part of the Annual Report.
12. PUBLIC DEPOSITS
The Company has not invited/ accepted any deposits from the public during the financial year ended March 31, 2015.
13. TRANSFER TO RESERVES
The Company has made no transfers to reserves during the Financial Year 2014–15.
The Board of Directors have not recommended any dividend in view of the performance of the Company for the Financial Year 2014–15.
16. CORPORATE SOCIAL RESPONSIBILITY ("CSR")
As required under Section 135 of the Companies Act, 2013, the Board of Directors of the Company constituted the CSR Committee consisting of Mr. S. Natrajhen, Mr. Nicholas Martin Paul and Mr. R. Ravivenkatesh as its Members.
The CSR Committee was reconstituted on May 28, 2015 comprising of Mr. Ajay Singh, Mr. Nicholas Martin Paul and Mr. R. Ravivenkatesh as Members. Effective, September 21, 2015 two of the Company's independent directors resigned from the Company pursuant to which the Company's CSR Committee was dissolved due to inadequacy of constituents.
Since the Company does not have net profit for the last three financial years, the Company is not mandatorily required to contribute towards CSR activities. However, the Company runs an initiative named "SpiceJet Cares" to contribute to society at large. Working in close harmony and partnering with various organisations who have done phenomenal work in this field, the Company reaches out to provide help and relief to the lesser privileged and to those in need. Few of such CSR activities are as follows:
a) Relief work and natural calamities
(i) In September 2014, the state of Jammu & Kashmir was ravaged by deadly floods. Volunteer employees of the Company were flown to assist rescue operations. Food and water were carried and distributed to the thronging masses at Srinagar airport irrespective of the airline they were flying. Commuters in need were extended all possible help at Srinagar airport and the airline assisted several NGOs in airlifting medicines and supplies for free.
(ii) During devastating earthquake in Nepal in April 2015, additional flights were operated between Kathmandu and Delhi, apart from those already scheduled. This helped in evacuation of huge number of people of various nationalities those were stranded without even basic amenities.
b) Special flights
(i) 24 underprivileged kids form the Navjyoti India Foundation and India Vision Foundation were flown to Goa on Holi 2015
(ii) In September 2015, the Company took 13 underprivileged children and 2 teachers of NGO, run by Sewa Bharati to Jaipur. This group got a privilege to meet the Chief Minister of Rajasthan.
c) Sapnon ki Udaan
In August 2015, the Company in cooperation with NDTV, operated special flight "Sapnon ki Udaan" for those who had never flown before, as 'Freedom to Fly' celebration to mark the Indian Independence Day.
17. PARTICULARS OF EMPLOYEES
We believe in building and sustaining a strong culture of positive working relationships between employees and recognise that the success of the Company is deeply embedded in the success of its human capital.
The Company had 4,185 employees as on March 31, 2015 (previous year 5,639).
The information required pursuant to Section 197(12) read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, in respect of employees of the Company, will be provided upon request. In terms of Section 136 of the Companies Act, 2013, the Report and Accounts are being sent to all the Members of the Company, excluding the information on employees' particulars which is available for inspection by the Members at the Company's registered office on working days, except Saturday/ Sunday and other public holidays, between 10:00 a.m. to 12:00 noon upto the date of the Annual General Metting.
18. POLICY ON PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE
The Company has a Sexual Harassment at Workplace (Prevention, Prohibition and Redressal) Policy in line with the requirements of the Sexual Harassment of Women at the workplace (Prevention, Prohibition & Redressal) Act, 2013. All employees (permanent, contractual, temporary, trainees) are covered under this policy. During the Financial Year 2014–15, four complaints were filed and disposed off accordingly.
19. RISK MANAGEMENT POLICY AND ADEQUACY OF INTERNAL FINANCIAL CONTROLS
The Company has laid down procedures to inform Board members about risk assessment and minimization procedures with regard to safety of its operations. These procedures are periodically reviewed to ensure that executive management is controlling risks through properly defined framework.
The system of risk assessment and follow–up procedure is in place and considering its increased operations the Company continues to reassess its risk management plan.
20. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION
The management is highly conscious of the criticality of the conversation of energy at all operational levels. Adequate measures are taken to reduce energy consumption whenever possible by using energy efficient equipments. The requirement of disclosure of particulars with respect to conservation of energy and technology absorption as prescribed in Section 134 (3)(m) of the Companies Act, 2013 read with Rule 8 (3) of the Companies (Account) Rules, 2014 are not applicable to the Company and hence not furnished.
21. FOREIGN EXCHANGE EARNINGS & OUTGO
The details of Foreign Exchange earnings and outgo are given under the Notes to Accounts.
The Company has been through challenging and demanding times in the recent past and is on its course of revival going forward. It would have been impossible for the Company to attain normal operations without the support of Ministry of Civil Aviation, Director General of Civil Aviation, Airport Authority of India, all private Airport Operators, other Government Authorities, Aircraft and Engine Manufacturers, Aircraft Lessors, our Bankers and all our business partners. We thank each one of them for their confidence and grateful for their continued support in re–building the airline,
We are most grateful to our passengers for reposing their faith in the airline despite experiencing operational discomfort in the past and providing us with the opportunity to regain our position. We are overwhelmed by choice of our passengers making us the top performer in terms of seat utilization in the Industry.
And lastly we are overwhelmed by the passion, perseverance and continued support of each and every employee and their respective families, who worked tirelessly and contributed in best possible manner to ensure that we are able to rebuild the airline. The Directors express their sincere appreciation to all the employees for their commendable teamwork and professionalism.
For and on behalf of the Board
Chairman & Managing Director
Date : December 1, 2015