Ajay Singh, CEO and Managing Director of low-frills Spicejet for IT story on Low Cost Airlines.

The Story of Spicejet, India’s 4th largest airline operating 230 plus flights to 34 Indian and 8 International cities today, and that of the man behind it who resurrected it from a defunct and mothballed carrier to one that successfully carved a sumptuous niche for itself in the Indian civil aviation sector as a Low Cost Carrier (LCC), is indeed a story very much worth retelling. The NRI Achievers editorial team took it upon itself to re-research this remarkable story in the annals of neo-modern Indian business to bring you this profile of Ajay Singh, the multifaceted man who has won a place for himself under the Indian sun several times over now.
The origins of Spice Jet go back to the early 1990s when Modi Luft was promoted by industrialist SK Modi in partnership with German flag-carrier Lufthansa, which after two years of sorties in Indian skies wrapped up operations in 1996. And so it remained in mothballs until 2004, when Ajay Singh, technocrat, serial entrepreneur, new-age business visionary and turnaround-man joined hands with friend Bhupendra Kansagra to take Modiluft off SK Modi’s hands and resurrect it as SpiceJet. The airline, modelled upon global LCCs like Ryan Air and Easy Jet, immediately succeeded in carving a sumptuous niche for itself in the relative calm skies of Indian civil aviation until 2008, when turbulence buffeted the airline with soaring fuel costs. Spicejet actively tapped the PE market and was rescued by American PE firm WL Ross & Co, promoted by billionaire Wilbur Ross, the distressed assets buyer known for turning around loss-making ventures. Ross pumped in INR 345 crore (US$ 80 million) to prop up the airline.
In the year 2010, when the Kansagra family and Ross together sold their stakes to Media Baron Kalanithi Maran, who thereby notched up a 38.7 percent stake in the Airline, Ajay Singh quit the board. From there on, things went more or less downhill for SpiceJet. When Singh walked away from SpiceJet in 2010, the brand he concocted and co-created in 2005, it had INR 800 crore in the bank. In 2012, the airline’s losses had amounted to INR 249 crore, but despite this, the Marans hiked up their stake to 53.48% by pumping in another INR 1 billion (US$ 16 million) into the airline, nursing it to return to profitability by the end of the year, and in 2013 SpiceJet launched its first interline pact with Tiger air. 2014, however, turned out to be particularly traumatic for SpiceJet, with its market share falling from 20.9 percent in July 2014 to 10.4 percent in December 2014.
The airline, which showed a net profit of INR 67 crore in 2009-2010, ended up reporting a loss of INR 1003 crore in 2013-2014, marking a day-to-day struggle for survival, with frequent fleet reductions and flight cancellations amidst rumours of an imminent shutdown. The DGCA (Directorate General of Civil Aviation) issued warnings over non-payment of salaries and dues, while airport operators moved to put the carrier on cash-and-carry mode, which meant the airline can use the facilities of an airport only upon immediate payment. On December 17, all flights were grounded after oil companies refused to refuel its planes, until a settlement was negotiated and flights resumed the next day. In early 2015, the firm was in such an air pocket of deep losses and had a mere INR 5 crore in cash that the outlook was grim. On the 30th of January 2015, the SpiceJet Board approved an INR 1500 crore share sales, the marans exited, and the board of directors transferred control of the airline once again to Ajay Singh, the very founder of SpiceJet who also used to run the airline earlier. And finally SpiceJet came full-circle as of 24th February 2015, with Ajay Singh back at the helm.
So now, with ex-promoter Ajay Singh once again firmly in the cockpit, the crisis-ridden airline is intent on taking a new direction, with Spicejet’s management going back to the boardroom to undertake a strategic review of its entire operations. Ajay Singh had made his priority explicit: to clear all dues, amounting to the tune of approximately INR 1400 crore. And he has been doing just that ever since he took over – the airline, on February 24th, managed to clear up its outstanding related to Income Tax (TDS) payments. Service tax dues, employee salaries and dues on plane rentals to its lessons for six of its Boeing aircraft had already been cleared earlier this month. Flight control now directly reports to Singh with him getting messages on his cell about flight delays. “The majority of people just want to travel from one place to another and be on-time on a neat and safe plane,” says Singh. SpiceJet today has a fleet of 17 Boeings and 15 Bombardiers and COO Sanjiv Kapoor says, “We will grow our international network, but with a focus on flights that are no longer than four hours flying time to maximise efficiency. We have withdrawn from several international routes in the past year that were unprofitable, and have added capacity to the more profitable ones.”
Next important task is to rebuild the confidence of the staff. “We have cleared all salary dues till date. In fact, February salaries have already been paid on February 28. We witnessed a natural attrition which we did not refill because of the decrease in fleet size,” says SpiceJet CFO Kiran Koteshwar. With the new management in place, SpiceJet is under greater scrutiny — both from the aviation industry and customers. The airline’s move to reintroduce flash sales has reignited the debate if such moves hurt the industry. “Flash sales are designed to get rid of seats that are expected to otherwise go empty, at rates that provide a return that is greater than the marginal cost of flying the passenger in that seat,” says Kapoor.

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Ankur Bhatia, executive director of Bird Group, which provides ground handling services to SpiceJet echoes the same opinion. “Globally, every airline does flash sales.” Customers too are keenly looking for changes. Sinju Venugopal, an HR consultant and a frequent flyer of the Hyderabad-Cochin sector, says: “SpiceJet nowadays doesn’t provide meals on their flight. During morning and night flights, it is a difficult proposition.” Recently, even Omar Abdullah, former chief minister of Jammu and Kashmir tweeted: “Due to technical reasons flyspicejet isn’t able to provide food for sale on flights. Please sort out these technical reasons quickly guys.” Ajay Singh admits that this is a vendor issue. But he insists that priorities lie elsewhere, like flying on time.
However, there are a lot of expectations hinging upon the shoulders of Ajay Singh, known in the industry to be a good boss. Many staffers had quit SpiceJet during the crisis last year and were looking for jobs elsewhere. Air Costa was one of their options. R Promod, who was involved with hiring at Air Costa at the time, says that they had given offer letters to many who came for job interviews. “As soon as the news came in that Ajay Singh is coming back, all of them went back to SpiceJet,” says Promod, who is now vice president, Airport Services at Fly Easy, a regional airline.
SpiceJet has gone through a near-death experience and Ajay Singh seems to have given it a kiss of life. The question is – can he nurture it back to good health ? The answer, perhaps, lies in the past. SpiceJet’s origins date back to February 1984, when it was incorporated as Genius Leasing Finance & Investment Company Limited which entered into aviation when industrialist SK Modi tied up with German Airlines Lufthansa. This was one of India’s first post de-regulation airlines, ModiLuft. Flying to five destinations, it operated between 1993- 1996. Cornell University alumnus Ajay Singh first came to the scene in 2004 when London-based businessman Bhupendra Kansagra came to him with the idea of revamping the defunct ModiLuft. Ajay Singh already had a reputation as a turnaround man. Having worked on the board of Delhi Transport Corporation (DTC) and as an advisor to the Telecom Ministry with the rank of a joint secretary, he knew how to revive albatrosses. When he had joined DTC in the mid-90s, it was in a state of despair with a few hundred buses. By the time he left two and a half years later, the corporation had a fleet of around 6000 buses. He was also appointed by the Information and Broadcasting Ministry to revamp the national broadcaster Doordarshan. These experiences are set to weigh in as he tries to turn around Spicejet.
“The plan (for SpiceJet) started around October 2004 and I announced that we will start operations in May 2005,” recalls Singh. People around him said it was impossible. But using the same licence of ModiLuft to fly, with three leased aircraft, and INR 10 crore of investment from Singh, SpiceJet took off on May 23, 2005. The first ball hit by Singh was a masterstroke. The tickets that were sold at a base price of INR 99 were a sellout and the initial flights had a passenger load of almost 90 percent. “I saw the effects of tariff reduction in the telecom sector. I was sure that this low cost model can be adapted to the aviation sector,” says Singh who crafted the Bharatiya Janta Party’s (BJP) successful publicity campaign in 1999 after which Atal Bihari Vajpayee came to power as the Prime Minister. But he insists that he was not part of the ‘India Shining’ campaign which turned out to be a fiasco in 2004. “It was a Finance Ministry campaign,” says Singh as he chuckles.
By 2008, the honeymoon came to an end. All airlines in the country started bleeding due to rising fuel costs. “SpiceJet was also losing money, but not as bad as other airlines. We needed fresh equity,” says Singh who had only a minor stake in the company but was heading the airline’s day to day operations. SpiceJet got a breather when maverick investor Wilbur Ross injected US$ 68 million in the country’s second largest low cost carrier in mid-2008. In 2010, Kalanithi Maran of Sun Group and Kal Airways (controlled by Maran) bought a 38.66 per cent stake and gradually increased the stake. “The management control went to Mr Maran and I sold my stake in the company,” says Singh.
That was the beginning of the not so good times. “Marans treated it as their family business, not as a public company,” says an industry observer who did not wish to be quoted. The airline’s losses, in the fourth quarter of 2011-2012, quadrupled to INR 249 crore compared to the corresponding quarter of the previous financial year. “In aviation business, there has to be laser sharp focus. The introduction of Bombardier planes proved costly,” says Captain G R Gopinath, the founder of Air Deccan. All over the world, low cost airlines run with one type of aircraft. SpiceJet under the Marans brought in Bombardier Q 400s in addition to the existing Boeing 737-900 ERs and 800s. This increased costs as there had to be separate teams for different aircraft. More pains followed. The airline had to pay more than a year of tax dues worth INR 380 crore between August and November. SpiceJet began returning planes. This led to fleet reduction which the company then called as “fleet restructuring”, which in turn resulted in flight cancellations. SpiceJet was slowly but surely spiralling out of control.
The path for Singh’s re-entry was paved in the first week of December 2014. A video conference connected Chennai to the Gurgaon office of SpiceJet in Udyog Vihar. Maran and Singh were face to face. Maran wanted to exit the business. In January 2015, the SpiceJet board approved the INR 1500 crore stake sale and after the approval from Competition Commission of India, Ajay Singh came full circle to SpiceJet on 24, February 2015. Almost everyone in the sector drew comparisons with Kingfisher Airlines, which bit the dust not so long ago. SpiceJet had looked down that abyss, but managed to stay afloat. “Ajay Singh’s proximity to the government also helped. He saw the reality, but Mallya didn’t believe till the end that something has gone wrong with the airline,” says Jitender Bhargava, former executive director of Air India and the author of ‘The Descent of Air India’. Incidentally, Singh was closely associated with the BJP’s campaign in the last general elections which heralded Narendra Modi into power. No prices for guessing who coined the slogan – “Ab ki baar, Modi Sarkar.”
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Chief Operating Officer Sanjiv Kapoor clarifies to the public that: “This was not a bailout. There was no funding of any kind involved from the government or taxpayer money; it was simply a few weeks of credit based on standard commercial terms,” he takes pains to explain in the in-flight magazine ‘Spice Route.’ Ajay Singh expects to turn the airline around by March 2016. For now, like any good middle order batsman, he seems to be focusing on the job at hand, ball by ball. And the guy, who started selling cheap plane tickets ten years ago, is just settling down. Casually dressed in a red SpiceJet Tee and blue jeans, he looks at ease seated in his office at Udyog Vihar. But the airline itself has to do a lot more. As Bhargava says, “it is time for them to hop, step and jump.”
Now, just as we move into the month of May, turnaround man Ajay Singh is gearing up to infuse yet another tranche of INR 400 crore by mid-month, on top of what he has already invested into the airline earlier this year. And he seems quite busy cleaning up the mess left behind by the Marans. All the ‘expensive’ top brass have been shown the door, with just a few top-level execs brought in by the past management continuing, mainly due to their ‘costly’ exit clauses. But our reading suggests that they too would be out soon, to make way for the co-founders trusted team. We excerpt here from an interview Ajay Singh gave to one of India’s top newspapers recently, on the challenges faced by SpiceJet:

How do you intend to raise moneys beyond the INR 1,000-odd crore envisaged by May ?
This money has come from a mix of investors and banks. We are getting a lot of funding offers from various players like private equity, debt providers, hybrid products and even foreign airlines. We will choose the mode of investment that comes at the lowest cost. If any further dilution of stake is needed, that will be done at a better valuation. Our improved performance will reflect in our stock price.
Fleet management. Will you continue with both Bombardier Q400s and Boeing 737s ?
We have renegotiated several contracts with Bombardier for the Q400. I will give this aircraft two more quarters. If they are able to give us profits in that time period, then they will stay. As of now, we have 14 Q400s and 20 B-737s. We will add at least two or three B-737s this summer.
Is fleet downsizing and staff rationalization over ?
From 5,500 employees, we are now down to 3,900. I don’t see any great need for further downsizing. As the airline grows again, the employees, who have been temporarily asked to go, will be given the first chance to return.
SpiceJet became synonymous with frequent promotions under the previous owner …
Promotional sales are a part and parcel of LCCs the world over. They enable people who have never flown before to take to the skies. However, they should not be indiscriminate and revenue-dilutive. The sales SpiceJet had in 2013 were very poorly designed.
What changes have you effected since February ?
SpiceJet was serving 39 airports. That number is now down to 31. As we add planes, we will not open new stations but add frequency to existing places. We have worked on our on-time performance, which has improved substantially in the last two months.
How would you describe SpiceJet’s condition now ?
I am now back in the airline for the long run. We are not yet out of woods, but we have made a lot of improvements since February. We have cleared all statutory dues, bank debt and are current on salary. It is painful to see what the airline has gone through. I could have formed a new airline with no liabilities, but being the co-founder of SpiceJet, I didn’t want this airline to collapse. So, I am back.

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