Go First files for insolvency: 6 pain points for airline amid flight cancellations
4 min read . Updated: 02 May 2023, 11:02 PM IST
PremiumMore than 180 Go First flights will be out of the skies on Wednesday and Thursday.
Ultra-low-cost carrier Go First Airlines sought voluntary insolvency resolution proceedings on Tuesday, cancelling flights and bookings for the next three days. The no-frills airline currently has liabilities of nearly ₹9,000 crores and is plagued by a whole host of problems.
The airline cites "serial failure" of Pratt & Whitney engines resulting in the grounding of 50% of the fleet as the reason behind its insolvency plea. It claimed that it was no longer in a position to continue meeting financial obligations. And so, as domestic air traffic soars, Go First has found itself grappling with turbulence due to engine supply woes and wondering ‘what’s next’.
Here are some of the issues that the airline, stakeholders, authorities and passengers will have to navigate in the coming months:
Grounded flights due to non-supply of engines
Even as India's air traffic surged past pre-Covid levels in April this, Go First remained constrained by a shortage of engines for its brand-new Airbus SE A320neo jets.
"Go First is facing financial crunch due to non-supply of engines by US-based jet engines manufacturer Pratt and Whitney (P&W) that has forced grounding more than 50 planes," a company official told ANI on Tuesday.
CEO Kaushik Khona said that the airline has grounded 28 planes - more than half of its fleet - due to the issue. This in turn had led to a fund crunch.
₹600 crore loan remains pending
Go First had been confident about receiving a major financial boost in the form of promoter equity and bank loan by the end of April. Reports indicate that this ₹600 crore loan is yet to come to fruition. The amount will reportedly inclue ₹300 crore provided by the Wadia Group as well as funding from a consortium of banks. The company was expected to use the money to address its ongoing supply chain woes.
It is pertinent to note here that the company had earlier received around ₹1,000 crore from the government's Emergency Credit Line Guarantee Scheme.
IPO plans remain in limbo
The airline was rebranded as Go First ahead of a planned ₹36 billion initial share sale last year. However, multiple attempts to launch an initial public offering have fizzled out in the past seven years. The airline has been unable to raise funds from the primary market after its IPO dreams were derailed by the COVID-19 pandemic. Go First's draft red herring prospectus approval expired in late August last year.
The company had planned to reportedly planned to use the IPO proceeds to replay a debt of ₹2,015 crore as well as paying some aircraft lessors towards securing lease rental payments and future aircraft maintenance with a cash deposit.
Mounting losses and repeated infusions
The cash-starved airline reported a loss in the range of ₹1,800 crore - including an ₹800 crore notional loss due to accounting standards in FY23.
Promoters have infused funds worth ₹3,200 crore in the last three years to keep the airline afloat. This includes ₹2,400 crore injected in the last 24 months. An amount of ₹290 crore was infused in April this year.
“This brings the total investment in the airline since its inception to approximately ₹6,500 crore," the airline said in a statement.
Promoters to exit Go First?
“We have no plans to shed stake or exit the aviation business. Our promoters are committed to the business and are infusing further funds in the form of equity," a top official of Go First Airlines told ANI in mid-April this year.
Somewhat contradictory reports have also suggested that the Wadias are in discussions to potentially sell a majority stake or completely exit the struggling airline.
DGCA show cause notices, fines and cancellations
In recent weeks GoFirst has found itself at the received end of DGCA notices, fines and more. Cancelled flights and other glitches (such as leaving 55 passengers behind on the runway) have incurred financial penalties as well as growing ill will among passengers.
Tuesday's cancellations have only served to amplify the issue, with the Directorate General of Civil Aviation issuing a show cause notice to the carrier for failing to provide prior intimation for its flight cancellations. Meanwhile passengers with scheduled flights have been left stranded after the abrupt announcement.