Go First declares bankruptcy: How does this impact other airlines?

Low-cost carrier Go First is on a troubled runaway! The question in the limelight is whether this airline will be able to use its wings to fly again. The airline will not carry any flights across India and outside from May 3rd to 5th but looks like this could be extended for many more days to come. That's because Go First has also opted for voluntary insolvency as it does not have sufficient cash to keep the fuel running in its engine. In such a scenario, other airliners are likely to benefit! But what about air passengers then? 

Citing "operational reasons" as the cause for flight cancellations, Go First on its website notified saying, "Go First flights scheduled for 3rd, 4th and 5th May 2023 have been cancelled. We apologize for the inconvenience caused by the flight cancellations."

The airline will be issuing full refunds to passengers who were booked to travel during these days shortly.

But while canceling its flight operations, Go First also shocked the aviation industry by filing for an insolvency resolution process before the National Company Law Tribunal (NCLT) Delhi bench.

The real problem in Go First is the "ever-increasing" number of failing engines supplied by Pratt & Whitney. This has led to heavy losses in Go First's financial books and hence a cash crunch to run the operations.

Jinesh Joshi – Research Analyst, Prabhudas Lilladher said, "The airline has been facing severe fund crunch since half of its fleet (out of 61 aircraft that Go First has, roughly 28 are in operations) is grounded due to trouble over non-supply of engines from Pratt & Whitney."

Read here: Go First makes exit, blames Pratt & Whitney for insolvency

As per the airline's statement, Go First has grounded 50% of its A320neo fleet which is due to the serial failure of Pratt & Whitney’s engines. While the airline continued to incur 100% of its operational costs. this resulted in Go First losing a chunk of ₹10,800 crore in revenues and additional expenses.

The percentage of grounding aircraft because of faulty Pratt & Whitney engines has skyrocketed to 50% as of December 2022 from 31% as of December 2020 and from a single-digit 7% as of December 2019.

Go First claims that the American aerospace manufacturer has given several ongoing assurances over the years but failed to meet.

Further, Joshi explained that "pertinent to note that the airline was already on cash & carry mode (paying OMCs on daily basis for fuel) and has now filed for voluntary insolvency resolution. Over the last 15 months, promoters had invested $366 million into the company but it was insufficient to cover up expenses and the airline was planning to raise money in recent weeks which apparently seems to have failed."

Now, Go First has also defaulted in the payment of lease rentals to lessors. And the lessors have started to take action against the airline.

The airline has received notices from lessors for termination of aircraft lease agreements, while some of them have also reportedly invoked letters of credit.

Read here: Go First insolvency: Lessors have started actions against company to ground, repossess aircraft

With the grey clouds hovering above Go First, this is seen as an opportunity for other Indian airliners to grab the airline's market share in their kitty. But chances are that this turbulence will also likely lead to an increase in air fares which can hit passengers' pockets.

In that case, Joshi believes that "sudden disruption in operations is likely to benefit other players and raise airfares due to supply constraints."

During the January to March quarter of 2023, Go First's market share stood at 7.8% with passengers carried to 29.11 lakh, as per DGCA data. 

Go First's immediate competition was with Tata Group's two airliners namely former-national carrier Air India and Vistara who hold a market share of 9% and 8.8% respectively.

In the first quarter of 2023, Air India and Vistara outperform the cash-trapped airline with a PAX of 33.70 lakh and 33.07 lakh respectively.

Go First has more market share than Air Asia and another listed airline SpiceJet with a market share of 7.3% and 6.9% with PAX carried to the tune of 27.52 lakh and 25.99 lakh respectively as of March 2023.

Currently, another low-cost carrier Indigo holds dominance in the aviation industry with a market share of 55.7% with passengers carried to 209.07 lakh between January to March 2023 quarter.

Go First operated 200 flights daily. In the year 2022, the market share of Go First stood at 8.9%.

Go First's bankruptcy filing would be the second in five years after Jet Airways failure in April 2019 in the aviation industry. It is worth noting that Jet Airways although has been rescued by Murari Lal Jalan and asset management firm Kalrock, is yet to commence its operations in the market. How much time Go First takes to hit the runway again will be keenly observed!