Richard Branson, billionaire and founder of Virgin Atlantic Airways, once said "if you want to be a millionaire, start with a billion dollars and launch a new airline."
It should resonate with many a Indian businessmen who had big plans in the airline industry, but failed. East West, Modiluft, MDLR, Paramount, Kingfisher, Sahara, Air Pegasus, Jet Airways and more... the list is long.
This week the Wadia Group-promoted Go Airlines, which operates flights under the Go First brand, joined the list as it approached the National Company Law Tribunal seeking voluntary insolvency.
Running an airline is a tough job and involves huge recurring expenses, ranging from paying for fuel, taxes, regular maintenance of the fleet and also upgradation and expansion of the fleet over time.
In India, the largest airline Indigo alone controls over half of the market share. For every other airline, its always going to be a challenge scaling up, unless it has funds and plans to back it up. Many have taken off and eventually crash-landed as funds ran out.
Go First unfortunately got hit hard by engine troubles. Its fleet of Airbus A320 aircraft runs on engines supplied by Pratt & Whitney. Engine problems lead to grounding of aircraft. No airline would want to see a grounded plane. It just sits there making no money, even as the airline must incur expenses on the same, ranging from parking fees to the payment it must continue to make to the firm it's leased from.
Go First has been facing engine troubles for some time and things have only worsened. In 2019, 7 per cent of its aircraft were grounded. That increased to 31 per cent in December 2020 and 50 per cent in December 2022.
With half the planes grounded, it was always going to be an uphill battle for any airline to continue flying.
Promoters of Go First have invested Rs 6,500 crore since inception. It had also planned to go public in 2022, but it didn't materialise. While the Wadia Group continues to own Go First, Jehangir (Jeh) Wadia, the younger of the two sons of Nusli Wadia, who was instrumental in setting up the airline back in 2005, stepped down in 2021.
The airline has said the grounding of close to half of its A320 neo fleet has set it back by Rs 10,800 crore in lost revenue and additional expenses.
Go First has pinned the blame on its current state and decision to approach the NCLT fully on P&W for not complying with an order issued by Singapore International Arbitration Centre. SIAC had directed P&W to supply at least 10 serviceable spare leased engines to Go First without delay and further 10 leased engines per month till December.
Go First has also sought compensation of around Rs 8,000 crore.
Kaushik Khona, Go First's CEO told TV channel ET Now that had P&W complied with the arbitration award, they would have been "home and growing our operating fleet."
P&W hit back in a brief statement denying allegations it was not honoring the arbitration award.
"P&W is complying with the March 2023 arbitration ruling related to Go First. As this is now a matter of litigation, we will not comment further," it said.
According to Khona, "Go First has a huge potential to revive and operate again very soon."
All will now depend on the proceedings in the NCLT and if and when P&W complies the arbitration award.
Unfortunately, reviving a stalled airline is easier said than done. Jet Airways is a great example.
The once popular full service carrier was grounded in April 2019. In June 2021, a consortium of businessman Murari Lal Jalan and Kalrock Capital won the bid to acquire it. Yet, almost 11 months later, Jet Airways is yet to take off. Importantly, its CEO-designate Sanjiv Kapoor and several other key officials have quit in recent weeks.
It could be a long time before the fate of Go First is decided. In the near term though, travellers will have a hard time. Go First had cancelled flights for three days beginning May 3. The Directorate General of Civil Aviation said on Thursday that the airline has suspended the sale of flights till May 15.
The aviation regulator has directed the airline to process refunds to passengers as per timelines stipulated in the relevant regulation.
According to ICICI Securities analyst Ansuman Deb, Go First had a 8 per cent market share in terms of domestic passengers as of February 2023 and 5 per cent in terms of international passengers. On certain routes like Mumbai-Goa, Delhi-Srinagar and Pune-Delhi, the airline enjoyed a strong 25 per cent, 23 per cent and 16 per cent share respectively, he pointed.
Suspension of all Go First's flights is bound to drive up fares on these and other routes.
"This (Go First insolvency) further tightens the supply in the Indian domestic aviation market, which we believe was already tight till at least 2025 from ongoing replacement cycle of Indigo and Air India, internationalisation of Indigo and supply shortage in the global OEM supply chain, " said Deb.
Go First is not the only airline facing engine troubles. Indigo, too, has faced similar issues for its fleet of A320 aircraft that run on P&W engines. But, it has managed to keep the issue under control .
Also, Indigo has frequently added new planes, while also proactively seeking alternative options. In 2021, for instance, it ordered engines from CFM International to power 310 A320 neo aircraft.
Go First suspending flights could help Indigo further boost its market share, say analysts.
Go First has said that P&W failing to abide by the directions in the emergency arbitrator’s award by providing spare leased engines, and with further engine failures expected in the next 3-4 months, "the operations of Go First will be made unviable."
The airline owed financial institutions around Rs 6,521 crore. While, this may be a tiny fraction of the overall banking industry's loans, lenders will be closely watching at how things unfold in courts.
When Jet Airways was grounded, many of its employees had carried on hoping the airline would be revived soon. Seeing how things unfolded there, many of the employees of Go First are likely to seek new opportunities and fast.
In the domestic market Air India as well as Indigo are in an expansion mode. Especially pilots are in demand due to shortage of experienced crew. So, there is hope for employees. But, given the different type of aircraft each carrier has, a switchover may not be easy and instant.
Just last year, the mood in India's aviation market was joyous with a new airline Akasa taking off and government completing the sale of Air India to the Tata Group. While, the market remains under-penetrated and scope for growth remains huge, Go First's insolvency has raised concerns over the viability once again.
