SpiceJet Q3 profit included assumption of Rs 246-crore compensation from Boeing

The assumption is based on an interim compensation offer received from Boeing but the agreement has not been finalized yet.

As a result, the company's auditor has clearly stated that had SpiceJet not recognised these expenses as other income, it would have posted a loss of Rs 168.5 crore for Q3FY20.

"In our view, there is no virtual certainty to recognise such other income, as required by paragraph 33 of Ind-AS 37. Had the Company not recognised such other income, the reported profit for the quarter and loss for the year to date from April 1, 2019, to December 31, 2019, would have been a loss of Rs. 1,684.50 million (Rs 168.45 crore) and a loss of Rs 6,576.29 million (Rs 657.629 crore), respectively, and accumulated losses as at December 31, 2019, would have been higher by Rs 5,372.70 million (Rs 537.27 crore)," S. R. Batlibol & Associates LLP has said in their independent auditor's review report.

SpiceJet, on the other hand, said that it has recognised these costs as other income on the basis of the ongoing negotiations and the interim offer received from Boeing, its own assessment and legal advice.

"Auditors go by standards. They don't go by logic. Auditors standards don't allow (expenses to be recognised as other income) until there is final agreement between the two parties. They have said that in a scenario where these qualifications do not materialize the loss could be so and so. They are saying things upfront. It does not mean anything," SpiceJet CFO Kiran Koteshwar told CNBC-TV18.

On February 14, the low-cost carrier reported a 21.1 percent year-on-year (YoY) jump in consolidated net profit at Rs 78 crore for the third quarter ended December 31.

"Stand-alone profit from Air Transport Services (airline) was INR 115 crore. Further, this profit is after a non-cash forex charge on account of IND-AS116 of INR 75.9 crore without which the profit would have been Rs 190.9 crore," the airline spokesperson said. The airline posted a loss of Rs 41.84 crore in freight and logistics services on a standalone basis.

While the company has posted a profit on the basis of expected compensation from Boeing, it is still not sure about the timeline for collection of the compensation amount.

"We are studying the compensation offer as there are terms attached. We have not accepted and signed the offer yet. By march end, we will close this stuff... (compensation via) cash or other.. we will figure it out," Koteshwar added.

On being asked about the current status of cash reserve in the airline, SpiceJet officials said that they will not be able to provide any information on the same and also denied the current cash reserve number which was reported on the basis of an investor presentation.

"The presentation uploaded on the website was an unaudited version, which got inadvertently uploaded. This had the draft balance sheet figures, which were for the month of September 2019 and got posted by mistake in the results of Q3 FY2020," a spokesperson from the airline commented.

"The contents of the balance sheet are therefore void and you are advised not to use this incorrect information. You would appreciate that the Company is not required to publish its balance sheet for any quarter," the company added.

The grounding of MAX for almost a year has severely affected growth plans for SpiceJet as it was banking on these aircraft to expand its network aggressively and in a cost-effective manner.

"We were expecting the MAX to return to service by January 2020 but that hasn’t happened. The continued grounding and the delay in its return to service has undoubtedly hit our growth plans adversely and resulted in inefficient operations and increased costs. That said, SpiceJet, expects to grow profitably while maintaining tight control over costs and we look forward to an exciting 2020," Chairman and Managing Director Ajay Singh said in a statement.