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Go First crisis, flights cancellation may help rivals IndiGo, SpiceJet: Report
The financial crisis surrounding cash-strapped Go First (formerly GoAir) could give rivals like IndiGo and SpiceJet a boost.
Cash-strapped domestic carrier Go First's move to suspend flights for 72 hours starting Wednesday may give rivals a chance to grab chunks in a congested market, analysts told Reuters this morning. "If the suspension is prolonged, other airlines (that are adding capacity) will look to avail slots vacated by Go First and grab the market share," a Jefferies analyst said in a note to clients.
Shares of IndiGo rose by over eight per cent this morning - after Go First halted flights and filed for bankruptcy. The airline blamed American manufacturers Pratt & Whitney for non-delivery of jet engines that forced it ground 28 planes and cost ₹10,800 crore 'in lost revenues and additional expenses'.
Go First operates a cash-and-carry model - it pays oil marketing companies daily per flight - and grounded flights means it lacks funds to pay OMCs' dues.
The Jeffries note said Indigo faces a similar P&W engine issue but has handled the crisis because of its larger fleet size and better negotiations with the vendor.
A second note - by Credit Suisse analysts - pointed out lessors may be more included to allocate some of the grounded Go First aircraft to rivals IndiGo.
This will benefit IndiGo in terms of market share and stronger yields in a capacity strained environment, the note explained.
Another rival - SpiceJet - plans to revive 25 grounded aircraft and said it had raised around ₹400 crore 'to make the most of upcoming peak travel season'.
READ | Amid Go First bankruptcy, SpiceJet plans to revive 25 grounded aircraft
Go First's lenders - including the Central Bank of India and Axis Bank, to whom the airline owes $798 million - dropped 1.1 per cent to 6.8 per cent Wednesday.
Go First is owned by the Wadia Group, which also runs bread and biscuits-maker Britannia and textile firm Bombay Dyeing; their shares dropped up to 1.5 per cent and 5 per cent this morning, respectively.
In fiscal 2022 the airline posted its biggest annual loss, leading to reports the Wadia Group is talking to partners to either sell a majority stake or exit.
What happened?
On Monday Go First chief executive Kaushik Khona announced the cancellation of flights for May 3, 4 and 5, and the filing of a voluntary insolvency application before the National Company Law Tribunal.
READ | Go First files for voluntary insolvency. What happened to the airline?
He told news agency PTI the 'unfortunate' decision had been taken to protect the interests of the company, which is understood to employ over 5,000 people.
Row with P&W
In a detailed statement released shortly afterwards, the airline said it had been 'forced' to apply for insolvency as P&W had 'refused to comply with an award issued by an emergency arbitrator' directing the supply of 10 engines by April 27 and 10 more per month till end-2023.
READ | Blamed for ‘faulty engines’, Pratt & Whitney says Go First has…
Pratt & Whitney hit back claiming Go First has a 'lengthy history of missing financial obligations' and that it is complying with a March arbitration ruling by a Singapore tribunal.
Govt's response
Notice of the cancellation of flights for three days prompted a 'show cause' notice by the Director-General of Civil Aviation, which said the airline had failed to inform it in writing.
The airline was given 24 hours - which ends later today - to respond.
READ | Govt will help 'unfortunate' Go First, says aviation minister Scindia
Aviation minister Jyotiraditya Scindia seemed more sympathetic, assuring the airline of all possible help. "… unfortunate that this operational bottleneck has dealt a blow to the airline's financial position. … the airline has applied to the NCLT. It is prudent to wait for the judicial process to run its course," he said.
Go First to quit market?
Go First dismissed reports it plans to exit the market, pointing out promoters had injected 'substantial funds' - ₹3,200 crore - over the past 36 months; ₹2,400 crore was injected over the last 24 months and ₹290 crore in April.
And this morning the airline told Reuters in an exclusive interview the Wadia Group remains committed and has no plans to exit the company.
"The Indian government is very keen we should not fail," Khona told Reuters.
'Doing everything possible'
Meanwhile, Khona has told airline's staff the carrier will care for them.
Addressing them as 'Go Getters', he said, "We want to reassure you we are doing everything possible to navigate this situation with utmost care for all…"
READ | 'Crippled by P&W...': Go First CEO slams engine maker in staff note
