One option is to change the SpiceJet management like Satyam’s

The cash-strapped SpiceJet, which is suffering huge daily losses and the wrath of consumers due to flight cancellations, will have to remain operational using its own recapitalisation strategy as the promoters, according to a media report, said that they will not inject additional capital. If the promoters don’t put in the capital, who will?

SpiceJet seems certain to go the Kingfisher way, since the wealthy Marans seems to have thrown up their hands. In the process small investors and employees would suffer. What can be done?

The Companies Act provides for a change of management in case existing management is found to be guilty of fraud, malfeasance, persistent negligence or default in carrying out their obligations and functions under the law, or for breach of trust. While there is no fraud here, there is mismanagement which is one of the clauses under the Act under which management can be changed.

Moneylife Foundation Trustee, former chief election commissioner, and secretary, department of company affairs, TS Krishnamurthy, in an open house held by Moneylife Foundation on consumer issues, pointed out that in such cases, like in the case of Satyam, the government can step in and replace the management. However, this power is seldom used. “We have hundreds and hundreds of Satyam-like companies in liquidation languishing which can be taken over and sold. In Kingfisher, many jobs could have been preserved, investors could have been protected if the government took over the company, changed the management and sold it. Unfortunately, there is only a selective rehabilitation of companies.” View the video of the event here

According to media reports, SpiceJet said “that it will cancel 52 flights a day till December 9. It had earlier said that it would cancel 50 flights every day till November 30.” The airline suffered an operational loss of Rs267 crore and a net loss of Rs310 crore in the September 2014 quarter. Over the past five quarters, SpiceJet has reported a total net loss of Rs1,488 crore. Over the past three years, the airline has reported a profit in just three quarters.

Investors of SpiceJet too have suffered serious losses. The stock price of the company has been on a continuous decline from the beginning of May 2013. The stock has declined by 63% to Rs15 as on 25 November 2014 from Rs40 as on 3 May 2014.

SpiceJet, which reported its fifth consecutive quarterly loss this month, has been trying to raise fresh capital for much of this year. On 24 November 2014, the promoters of SpiceJet, informed the Bombay Stock Exchange, that they are seeking investors to raise fresh capital and return to profitability.

The airline, controlled by Kalanithi Maran's Sun Group, said that a few parties have approached it and evinced interest in making an investment. “"However, since the deliberations with such prospective investors are at an exploratory and preliminary stage, it will be improper to comment on the specifics of any possible stake sale or valuation at this stage," they clarified.