Go First airline suspended its operations and filed for bankruptcy before the National Company Law Tribunal on Tuesday, a development with wider implications for India’s civil aviation sector.
The last-minute cancellation of all Go First flights between Wednesday and Friday, and consequent surge in airfares on some routes, has inconvenienced passengers as travel demand has risen in the summer.
Experts say rival airlines stand to benefit. But what about passengers? Does stormy weather lie ahead?
Cash crunch and grounding
Previously called GoAir, Go First had a market share in India of nearly 7% in March and carried almost 29,000 passengers daily, according to data from India’s civil aviation regulator, the Directorate General of Civil Aviation. The airline operated over 200 flights daily.
On Tuesday, Go First claimed that its cash flow had been hurt by the grounding of 25 of its Airbus A320neo aircraft due to the “ever-increasing number of failing engines” supplied by American aerospace manufacturer Pratt & Whitney.
The airline alleged that Pratt & Whitney had failed to meet contractual obligations and had refused to abide by an emergency arbitration award from March under which the engine manufacturer was to supply Go First at least 10 serviceable spare leased engines by April 27. It was to supply 10 additional engines per month until December 2023.
The American supplier’s geared turbofan engines have faced technical issues around the world since they were brought into service in 2016. In 2019, India’s aviation regulator had ordered airlines to replace these faulty engines before adding new aircraft to their fleet.
IndiGo, India’s largest airline by market share, has faced a similar problem with the Pratt & Whitney engines. However, it has withstood the impact because of a significantly larger aircraft fleet.
Go First, with a staff of around 5,000, said that with more engine failures expected over the next financial quarter, its operations would have become unviable. “Had Pratt & Whitney complied with the emergency arbitrator’s award, all of Go First’s aircraft would have been operational by August/September 2023, ensuring profitable operations,” the airline said in a statement.
Pratt & Whitney responded to Go First’s allegations saying it was complying with the March arbitration order. However, the engine manufacturer alleged that Go First had a “lengthy history of missing its financial obligations” to it.
Passengers affected in peak season
A subsidiary of the Wadia Group, Go First has become the first major airline in India to collapse since Jet Airways filed for bankruptcy in 2019. An interim resolution official is expected to take over operations until the insolvency process is completed.
Already, the void left by Go First has hurt passengers. On its website, Go First said that it will provide a full refund to passengers for cancelled flights. However, the airline said that it can neither help transfer passengers to other airlines, nor reschedule tickets to a future date.
The last-minute demand amid the summer travel season has led to soaring ticket prices on some routes.
For instance, at around 2 pm on Wednesday, the cheapest non-stop flight ticket from Mumbai to Delhi, India’s busiest route, was selling at around Rs 19,000. The price was around Rs 11,000 for Thursday and Rs 12,000 for Friday. The cheapest ticket between Delhi and Mumbai was priced at over Rs 9,000 on Wednesday and around Rs 6,500 for Thursday and Friday. In some cases, these airfares have more than doubled from the usual prices.
Ameya Joshi, founder of aviation analysis website Network Thoughts, said high prices for last-minute ticket bookings would immediately hurt around 30,000 passengers.
Joshi suggested that going by the collapse of Jet Airways in 2019, it would take around three months for the situation to stabilise. “The disruption settlement will be dependent on how soon the capacity is back and what the government decides on doling out slots at airports and helping airlines induct capacity,” Joshi told Scroll.
Go First’s collapse comes at a time when airfares have already been rising due to increased fuel costs and the post-pandemic rebound in demand.
The civil aviation regulator has asked Go First to list measures taken to mitigate the inconvenience caused to passengers and provide plans of how it aims to resume operations.
Go First’s collapse has wider ramifications. Reuters, citing the bankruptcy filing, reported that Go First’s total debt to commercial banks was over Rs 6,500 crore as of Friday. These creditors are Axis Bank, Bank of Baroda, the Central Bank of India, Deutsche Bank and IDBI Bank.
In its filing, the airline said that it had not defaulted on any of these dues to banks as of Sunday, but it had defaulted on payments to operational creditors, including Rs 1,202 crore to vendors and Rs 2,660 crore to aircraft lessors. The airline’s total liabilities stand at over Rs 11,400 crore.
Mahantesh Sabarad, an independent market expert, told ET Now that these banks are not likely to recover more than 25% to 30% of these dues. On Wednesday, the share price of the Central Bank of India, which has the largest exposure to the airline at around Rs 2,000 crore, plummeted 4.8%.
Go First’s crisis has, however, provided a major fillip to its rivals. Aviation stocks, such as Indigo’s, surged up to 8% on Wednesday, driven by hopes that those airlines will get additional elbow room in India’s highly-competitive civil aviation market.
“The sudden disruption in operations is likely to benefit other players,” said Jinesh Joshi, a research analyst at Prabhudas Lilladher, a financial services company.
Ameya Joshi said that the opening up of Go First’s airport slots and bilateral rights, which have been in short supply, will provide opportunities for other carriers.
“Everybody should benefit instead of just one or two players, and that will depend on how soon airlines can shore up capacity,” he said. The airline’s collapse will affect post-pandemic recovery but it will help other airlines make the most of the holiday season. Though, this could be at the cost of passengers, he said.
SpiceJet, a rival airline, said on Wednesday that it was already planning to bring 25 of its grounded aircraft back into service to cash in on the void left by Go First.