Go First files for bankruptcy: What led to the downfall
Wadia Group-owned Indian airline Go First filed for insolvency proceedings on Tuesday. The budget carrier has also suspended all its flights till May 5. One name that keeps coming up alongside Go First is US-based aerospace manufacturer Pratt & Whitney (P&W). The airline blames P&W for its fall. Let's take a look at what led Go First to the current situation.
Go First has not taken advantage of aviation sector's growth
Go First, formerly known as Go Air, has been struggling for a while. India's first ultra-low-cost carrier (ULCC) is known for being conservative in a highly competitive aviation industry. The past few years have seen rapid growth in India's aviation sector, but Go First hasn't been able to capitalize on that. The company's mounting debt and falling market share are a testament to that.
The airline's market share has been declining steadily
The struggling airline was founded in 2005, one year before its competitor and market leader, IndiGo. Go First's advantage over IndiGo ends there. In the January-March quarter, Go First's market share stood at 7.8%, while IndiGo controlled 55.7% of the market. The former's market share has been on a steady decline since 2019 (10.6%). Its cautious approach failed to pay any dividends.
Go First failed to capitalize on market opportunities
The chief reason behind Go First's decision to go for "voluntary insolvency" is severe cash crunch. The company has struggled with cash flow and sustainable profits for a while. Its failure to capitalize on market opportunities as one of India's first low-cost carriers still hurts the company. The pivot to ULCC hasn't been that favorable as well.
Grounded flights affected Go First's cash flow
Go First, however, blames P&W for the cash crunch the company is facing. The airline has grounded half of its Airbus A320neo fleet due to the continuous failure of P&W engines. The company attributed its cash crunch to the increasing number of failures of P&W's Geared Turbo Fan (GTF) engine. According to the airline, grounded flights affected its cash flow.
Go First lost Rs. 10,800 crore in revenue
While flights were grounded, the airline continued to incur operational costs. This resulted in the company losing Rs. 10,800 crore in revenue and other expenses. It also has an outstanding debt of Rs. 6,521 crore with a 'negative outlook.' Although the company has not defaulted on any dues so far, its current situation means possible defaults in the near future.
SIAC ordered P&W to deliver engines to Go First
Per Go First, P&W refuses to comply with an order of the Singapore International Arbitration Centre (SIAC). The SIAC ordered P&W to dispatch at least 10 serviceable spare leased engines by April 28, 2023, and another 10 every month till December 2023.
The airline filed a lawsuit in Delaware
Alongside the insolvency proceeding with the National Company Law Tribunal (NCLT), Go First has filed a lawsuit against the aerospace major in a Delaware federal court seeking the enforcement of the arbitration award. The airline has also sought Rs. 8,000 crore as compensation from P&W. It hopes to repay creditors if it wins the compensation.
GoFirst has a lengthy history of missing financial obligations: P&W
Meanwhile, P&W has come out strongly against Go First's allegations. "Go First has a lengthy history of missing its financial obligations to Pratt," the company said. "Pratt & Whitney 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 added.
Go First is staring at an uncertain future
Go First is now staring at an uncertain future. The airline is looking for strategic investors, but how soon it can find one will determine how things progress. The carrier is set to resume flights after May 5, which is contingent on NCLT accepting its application. Whether it will receive bookings is another question that needs answering.
