Where Did Go First Go Wrong & What Should Airlines Learn From It? Go First Airline, which filed for bankruptcy, announced that its flight operations will remain canceled until 9th May due to operational reasons. New players such as Akasa Air and upcoming Fly91, have a lot to learn from this

Go First Airline, which filed for bankruptcy, announced that its flight operations will remain canceled until 9th May due to operational reasons. Go First's voluntary insolvency proceeding plea was heard at the National Company Law Tribunal (NCLT) on Thursday and the airline blamed it on jet engine maker Pratt & Whitney (P&W) for grounding half of its fleet, along with COVID-19 restrictions, for this situation.

So, what led to this turbulent phase of the airline and is there a chance of safe landing? "For some years, its auditors have highlighted their opinion of the airline not being capable as a going concern. The P&W engine issue is the straw that broke Go First's back. The process in NCLT is complicated and time consuming and to survive the airline will need an emergency ingestion of cash, a compromise with P&W and relief from creditors," said Shakti Lumba, former vice president operations, IndiGo Airline.

"Unfortunately India does not have the equivalent of the US Chapter 11 in its law on bankruptcy, it should consider something like it," he added.

A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a reorganization bankruptcy. Usually, the debtor remains in possession, has the powers and duties of a trustee, may continue to operate its business, and may, with court approval, borrow new money.

The role of government

The airline has been faced with critical supply chain issues with regard to their engines. The GOI has been assisting the airline in every possible manner and the issue has also been taken up with the stakeholders involved. "Yet, it is unfortunate that this operational bottleneck has dealt a blow to the airline's financial position. It has come to our knowledge that the airline has applied to the NCLT. It is prudent to wait for the judicial process to run its course," said a statement by Jyotiraditya M. Scindia, Union minister for civil aviation.

Meanwhile, the DGCA issued a notice to the airline on the sudden suspension of flights. It's incumbent upon the airline to make alternative travel arrangements for passengers, so that inconvenience is minimal.

Could an early intervention by DGCA prevented this? "The DGCA is required to carry out regular forensic financial audits on an airline's financial health. Apparently, it is not doing it regularly and had they done this, the financial health and danger signaling out of Go First would have been captured well in time," Lumba added.

What other airlines should learn?

Over the years, the Indian aviation market has taken a global spot. There are new players such as Akasa Air and Fly 91 Airlines, a regional airline expected to launch its operations in October 2023. Fly91 is an initiative by ex-Kingfisher executive Manoj Chacko and the company received its NOC from the ministry of civil aviation (MoCA) on 25th April.

Prevention is better than cure and considering the recent development, what should new players learn? "Airlines need to be more than adequately funded and not depend on ticket sales cash flows to meet its operating costs," Lumba said. Airlines need to plan a comfortable ratio of owned and leased airplanes so as to have an asset base. Explaining this, Lumba said, "Airlines that have a business plan with only leased aircraft are at the mercy of the US dollar and deprecation of the Indian rupee. Airlines should never sell below cost–just to satisfy an argument that the most perishable commodity in an aircraft is its empty seat– it perishes when the airplane doors close."

The top airline of the country in terms of market share,IndiGo, commanded its position at 56.8 per cent in March 2023. IndiGo, a low-cost airline was set up by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal. So, what has helped the airline in maintaining the top spot? "IndiGo is very cost conscious– it is willing to pay a top dollar for needs and not a penny for wants. It has a well defined business plan and the airline is run by professionals and not micromanaged by the owners," he said.

Other airlines might cash in on an opportunity to grab a share of flights, cabin crew, maintenance professionals, slots and a piece of the market share of about 8 per cent.

Past highlights

Go First had to file for bankruptcy despite fund infusion to the tune of INR 3,200 crore by the promoters in the last three years. This brings the total promoter investment in the airline since its inception to approximately INR 6,500 crore. Go First has also received significant support from the government of India's exceptional Emergency Credit Line Guarantee Scheme.

The grounding of close to 50 per cent of its A320neo fleet due to the serial failure of Pratt & Whitney engines, while it continued to incur 100 per cent of its operational costs, has set Go First back by INR 10,800 crore in lost revenues and additional expenses. In order to recover losses,the airline sought compensation of approximately INR 8,000 crore in the SIAC arbitration. If GO FIRST is successful in the arbitration, it is hoped that the airline will be able to address the liabilities of its creditors.

According to an International Journal of Scientific Research and Engineering Development-– published in 2020, one of the major challenges for Go First and its competitors operating Airbus 320new family of aircrafts was the engines supplied by Pratt & Whitney. Though Airbus A320 aircraft are manufactured by Airbus, there are various suppliers involved in the manufacture of the aircraft. "One such supplier is Pratt & Whitney, the supplier of the A320neo engine. Now this new engine has been successful in the cold European and North American market, with features such as 16 per cent fuel efficiency and 75 per cent less noise as compared to its predecessor. In India the hot and humid weather conditions have been causing an accelerated and premature wear and tear of critical components of the engine causing grounding of the fleet and cancellation of scheduled flights," the report added.