Go Air Disruption: A Case Study

November 2023

Go Air's CEO Kaushik Khona quit the company saying that they couldn't get the aircraft fly again as they are in the verge of bankruptcy. They also couldn't get any saviors even after entering bankruptcy protection during May. The sole potential buyer of the Go Air "Jindal Power Ltd." has also decided not to Bid for them stating that they couldn't assess any value of Go Air as it was unclear hoe many planes they had after the Regulator's (DGCA) signal to Go air that the aircraft must be returned to lessors.

Go Air has 54 Airbus SE A320 neos on the ground and if the company announces bankruptcy, then it would join the list of 11 other airline companies to become bankrupt in this century.

History:

Go Air was established in 2005 by Wadia Group which also runs Britannia Industries Ltd. and Bombay Dyeing Manufacturing and Co. by the son of Mohammed Ali Jinnah, the founder of Pakistan. The main reason for Go's inefficient decision making was to accumulate high debts to pay aircraft leases, airport fees and salaries when jets were grounded during covid. Which ultimately failed to create a niche player for an efficient airline. In the case off Airline industry, where there are huge costs for aircraft and airport related fees, the longer the services are halted, the harder it is to manage the processes as the margin in airline industry is comparatively lesser for Economic and affordable airlines.

Strengths

• Positioning itself as an ultra-low-cost carrier and focusing on maintaining low unit costs and high utilisation

• As of September 2021, it had a fleet inventory of 57 aircrafts

• The fuel-efficient A320 NEOs constitute 82% of its fleet size. This helps it cut down on fuel costs

• On an expansion spree with an order book of 98 A320 NEO aircrafts. These will be received in tranches till FY25

• The average age of its aircraft was 3.7 years, making it the youngest average fleet age among Indian low cost carriers

• Has established strong positions in slot-constrained airports such as New Delhi, Mumbai, Ahmedabad and Pune

• Has the third highest aircraft average utilisation with 12.9 hours per day

Risks and threats

• Pandemic-like situation could trigger a fresh round of restrictions on mobility

• Inability to pay rent for aircrafts under lease between February 2020 and March 2021

• Its consolidated indebtedness stood at ₹8,160 crore, as on 19 April 2021

• Faces intense competition from Air India, IndiGo and SpiceJet. This could lead to pricing pressure

• Operates in the airline industry, which is characterised by low profit margins and high fixed costs

• Has incurred losses in the past

• Its market share had risen from 8.8% in FY18 to 10.8% in FY20. However, it was again back to around 8.5% as of November 202

• Rise in Global Fuel Prices fueled the downfall of the company I

nternal Risks mentioned in their IPO Documents

1. The novel coronavirus ("COVID-19") pandemic has had an adverse impact on our business, operating results, financial condition and liquidity, and the duration and spread of the pandemic or another pandemic could result in additional adverse impact on our business.

2. We have been and continue to be in payment default under several of our aircraft lease agreements. Such defaults may lead our lessors to initiate legal or enforcement proceedings against us, enforce bank guarantees, appropriate security deposits or repossess our aircraft, which will adversely affect our business, financial condition and results of operations. Further, we were also in default under one of our loan agreements (in relation to which we have entered into an agreement to reschedule the principal repayments).

3. We may be unable to successfully implement our ultra-low-cost carrier (or ULCC) model, due to a number of factors outside our control, including the continuing impact of COVID-19.

4. We may be unsuccessful in implementing our growth strategy.

5. We are in the process of re-branding our airline, and there is no assurance that our new brand will be successful or that there will not be any objections or litigation in relation to our new brand 6. We may be unable to fulfil our payment commitments under our aircraft purchase agreements with Airbus. Any inability to fulfil our commitments may result in contractual claims, penalties and impact our ability to source aircraft for our fleet and impact our ability to implement our ULCC strategy.

7. Our levels of indebtedness could adversely affect our business. Further, we may incur a significant amount of debt in the future to finance the acquisition of aircraft and our expansion plans.

8. Our business could be adversely affected if we are unable to obtain regulatory approvals in the future or maintain or renew our existing regulatory approvals

9. The adoption of Ind-AS 116 has significantly impacted our financial results

10. We have faced issues relating to engines supplied by Pratt & Whitney, which led to the grounding on a significant portion of our fleet in the recent past.