From growth-wary to grounded: How Go First flew into rough weather

Go First, the country’s third largest airline by market share, declared insolvency this week. The airline blamed its engine supplier for failure to deliver reliable engines and failure to comply with an arbitration order asking the supplier to provide engines to the airline.

Even so, the path to the grounding was not a straight line. Looking back, the dots connect to reveal an airline that was faced with multiple challenges and with no navigators to help chart a flight path through the storms. As a result, 5000-plus employees, over 1 lakh passengers, and multiple stakeholders are left by the wayside. That, too, in the middle of summer, when, ironically, demand is at its peak and airlines traditionally make money.

Now, the question in many quarters is: Will Go First fly again?

From founding to the pandemic

With 55 aircraft, a turnover in excess of Rs 4,000 crore and 200-odd flights per day, Go First had been facing a host of challenges.

Started in 2005, the airline always had an extremely cautious approach to growth. As such, other airlines came and took a piece of the pie, but Go First held steady in cruise. The sweet spot seemed to be around 10 to 15 aircraft and 5%–7% market share. Control on costs was absolute; the airline was often accused of being unambitious, while management churn was constant, making for a lack of continuity.

Also read: Go First suspends sale of tickets till May 15; DGCA asks airline to process refunds

The year 2011 saw a somewhat surprising move by Go First (then GoAir), when it announced an order for 72 Airbus 320 NEO aircraft. Industry watchers indicated that finally, the airline was going to start on a growth path. The years from 2015 saw a turnaround, and the airline started to report profits.

The year 2016 saw perhaps the boldest move by the airline, with 72 Airbus A320 NEO aircraft being ordered. This, on top of an already existing order of 72 aircraft of the same type. It seemed that, finally, the airline had started ascending and accepting a higher altitude. But in aviation, things can change overnight. And drastically.

And sure enough, while attempting to climb higher, Go First found itself facing a host of challenges. By the end of 2019, it started to see strains on cash-flow. And then, the pandemic simply changed everything.

2020 onwards

The year 2020 onwards was a turbulent ride. First, there was the issue of surviving the pandemic. It was made possible by employees who continued to work without pay, by a set of schemes by the government, and by the suspension of payments and renegotiations.

As the lockdown was lifted, air traffic trickled through — gradually at first, and then, building up month on month. A new CEO was brought in towards the end of August but the challenges continued.

The year 2021 saw a rebranding, wherein the airline was named Go First (from the earlier GoAir). This was necessitated, as the founder left the board and severed ties with the airline and there would be legal ramifications if the erstwhile name was used.

Also read: Central Bank of India says it has exposure of Rs 1,305 cr to Go First

In the years that followed, things went from bad to worse. Financially, the losses were mounting. In the past three years, losses exceeded USD 100 million each year, and the balance sheet saw significant erosion. Dues kept mounting and, for aircraft rentals alone, the dues were in excess of USD 250 million.

Challenges also cropped up in operational performance, where the first three months of 2023 saw the airline only deliver ~50% on-time performance across the four metro airports. This, despite a truncated schedule. And, to top it all, there were the engine troubles, where the airline contends it was forced to ground a portion of its fleet continuously — 30 aircraft grounded at last count.

As these challenges came together, the cash-flow only weakened further and, as it is famously said — gradually and then suddenly — the airline found itself in a position of insolvency.

What next?

At the time of writing this article, the airline’s lawyers were appearing in the National Company Law Tribunal, putting forth their arguments on why the case should be admitted. The key word seems to be “moratorium,” which would buy the airline some time.

Separately, sources indicate that the lenders, who have a collective exposure of Rs 6,000 crore to the airline, have agreed to extend the tenure of payments on loans. Even so, that may not be enough, as lines of credit have been drawn down, credit holds initiated, and there is a complete erosion of trust for some stakeholders.

While hopes are pinned on the airline taking to the skies once again, what this requires is a significant infusion of capital — to the tune of USD 1600 crore at the very least — followed by renegotiations, restructuring, and a revisit of the entire strategy. Ironically, with that capital base, it may be easier to start a new airline.

Also read: Go First bankruptcy: 9 policy changes that can provide tailwinds to Indian aviation

A strategic buyout is also being discussed, but given the extremely fragile balance sheet, liabilities estimated north of Rs 8000 crore, and potential legal challenges, even the keenest buyer may shy away from the deal. Also, if a strategic buyout made sense, would a buyer not have approached the airline already?

Finally, there is the grim and dire reality of the airline being shut down. That’s because, for the airline to take to the skies again, bookings would have to flow. And given the state of the airline, these would take time to build. Which means provisioning for losses. Which, in turn, means additional credit lines or equity infusions, neither of which seem to be on the horizon.

To those who argue otherwise, the only question is, “Which airline are you considering for your next flight?” Till the time Go First enters your consideration, set it aside as an airline standing still with its wings clipped.

(The writer is the Managing Partner for the aviation services firm AT-TV)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal)