Explained: How Did GoFirst Go From Multiple IPO Attempts To Voluntary Bankruptcy?

The airline sector has seen another bankruptcy, with Go Airlines India Limited filing for resolution on Tuesday. While the move to file for bankruptcy voluntarily was surprising, Go First's financial troubles were well-known.

Owned by the Wadia Group, Go First was launched in 2005 when the global economy was booming. It was around the same time that Kingfisher, Indigo, SpiceJet and several other new airlines had been launched in India. 

Yet, over the next eighteen years, many of these airlines fell by the side, while some, like Indigo, ended up conquering a major chunk of the market. GoFirst, however, managed just to survive and grew at a slow pace. 

Despite being launched earlier than Indigo and Spicejet, Go First's fleet is significantly smaller, giving it lower economies of scale than other airlines. Over the years, Go First has seen high staff turnover in its top management positions, with seven chief executive officers replacing one another since its inception. Vinay Dube, the current CEO of Akasa, left the company within months of joining. 

The company, which was loaded with debt, attempted to launch an initial public offering (IPO) but could not do so at the right time. Even if the company did launch an IPO in current times, it might have found it difficult to find takers as it was reporting high losses and the stock markets have been volatile. 

The company has a total debt of Rs 6,281 crores at the end of April 2023, and despite infusions from promoters and banks, it has been unable to address its underlying operational issues. The promoters alone had pumped in 3000 crores.

Engine Issues Have Been GoFirst's Biggest Headache

The company began facing more severe issues during and after the pandemic when its aircraft's Pratt and Whitney engines had to be grounded. Nearly half of its fleet is grounded today due to engine trouble, reducing its ability to earn revenues. 

The airline business has high fixed costs, making it absolutely necessary that aeroplanes have minimum downtime. 

Airlines follow the concept of aircraft leasing, where they buy an aeroplane and re-sell it to a lessor who pays money to the airline upfront and leases the plane to the airline. The process gives airlines significant cash. 

Go First's lessors were looking to take back planes as the company has been unable to make payments for the last few months. After the bankruptcy, Go First's lessors have reportedly invoked letters of credit to get their money back from Go First. 

Even if Go First manages to restart operations, a smaller fleet would only increase its troubles as it might have to stop plying on certain routes and might have to lay off staff to make operations sustainable on a smaller fleet base. 

The company has also not received any compensation from Pratt Whitney over the engine issues, while another Indian airline whose planes were grounded did receive significant compensation.

Others Might Benefit From Go First's Troubles

If Go First's troubles continue, other airline players could take advantage of the situation. 

With Go First filing for bankruptcy, the airline space would see another player take a backseat. Players like SpiceJet have already cut down on certain routes, while Jet Airways' revival needs to be more active after its CEO quit. 

Players with a relatively stronger financial and operational position, such as Akasa, Air India, and Indigo, could stand to benefit from the current turbulence.

It Might Still be Too Early to Write off Go First

Nevertheless, writing off Go First immediately might be a mistake. The company's current troubles are mainly connected to the Pratt and Whitney engines that it hasn't received. If the company does receive some compensation and the engines, it could turn around its operations. 

The Wadia group has been infusing funds into Go First to support its loss-making operations. The Wadia Group owns prime real estate and has strong cash flows from the group's other arms. 

In an interview to CNBC, Go First CEO Kaushik Khona said that promoters have provided security collateral of prime land worth Rs 3000 crores for Go First's loans.