Go First's Descent On Inflated Debt, Falling Market Share And Worsening Punctuality

Low-cost carrier Go First's decision to file for voluntary insolvency and suspend operations for the next two days seems to be the culmination of a story that has been years in the making, as reflected in its inflating debt, falling market share and not-so-reliable punctuality.

The company blamed the entirety of this debacle on the U.S.-based engine maker Pratt & Whitney, which caused "enormous damage" with its "defective and failing engines".

"Prior to the acute issues caused by the serial failure of Pratt & Whitney's engines, Go First enjoyed a market share of 10.8% in FY20, and was consistently profitable from 2010-2020, with a comparable Ebitdar to its largest competitor from 2016-2020," the airline said in a statement announcing the application for voluntary insolvency.

"In FY22, Go First reported Ebitdar better than that of the largest competitor, by almost 3.4%. The operating costs of the company continued to be lower than that of its largest competitor from 2020-2022."

The airline has suspended operations for May 3 and 4, amid a financial crunch driven by half of its fleet being grounded, due to non-availability of engines. The U.S.-based engine maker, has refused to comply with an arbitral award to supply at least 10 spare leased engines by April 27, which led to this announcement.

Mounting Debt

The company's total outstanding debt stood at Rs 5,600 crore with a 'negative' outlook, according to a report published by Acuité Ratings & Research Ltd. in January.

Run by one of the oldest business groups in India, the Wadia Group-backed airline has been forced to take this step despite the infusion of substantial funds. The promoters infused Rs 3,200 crore into the airline in the last three years, Rs 2,400 crore of which were injected in the last 24 months, and Rs 290 crore in April 2023 alone, the airline said.

Since inception, the promoters have invested Rs 6,500 crore in the airline, it said.

The mounting debt can be understood by the airline's estimates that it lost Rs 10,800 crore in revenues and due to additional expenses incurred, partly as a result of dues on grounded aircraft.

Sliding Market Share

The airline's market share also has been on a decline, reflecting the falling faith of flyers in the company's competency to run dependable operations.

According to the monthly numbers released by the Directorate General of Civil Aviation, the airline's market share reached a peak of 11.1% last year in May, but has fallen consistently since then to 6.9% in March.

The airline's cumulative market share in 2022 stood at 8.8%, lower than only IndiGo and Vistara.

Another indicator of the worsening operations of the airline was its on-time performance, a key differentiator in a cut-throat market, where they look to undercut each other in ticket prices.

At the beginning of last year, Go First was the most punctual airline with an on-time performance of 94.5%.

However, the ever-increasing number of grounded aircraft may have pushed the airline to fill as many seats as possible in the rest of the planes it flew.

As 2022 came to an end, the airline's on-time performance crashed to below 50%, the lowest among the major airlines.

In March, the latest month for which data is available, only 49.2% of the airline's flights were on time at major metro airports.