Go First's IPO Struggles Carry Lessons For Indian Airlines

The struggles of Go Airlines India Ltd., the parent of low-cost carrier Go First, to go public since 2015 underscores pitfalls for Indian airlines as they can't rely on Indian bourses to raise funds amid mounting losses.

After multiple attempts to launch an initial public offering in the last seven years, this time the company's draft red herring prospectus expired in August. Multiple challenges including Ukraine-Russia war, Omicron variant of coronavirus and volatility on the stock exchanges forced the company to push back the IPO several times.

“Capital requirements for businesses will go up eventually, which is why going public is a compulsion and not an option,” said Deven Choksey, founder and promoter of KRChoksey Holdings. “Not many promoters have the financial heft needed to keep an airline going.”

The Wadia group-controlled Go First sought to raise Rs 3,600 crore in the initial public offering to pay back debt, repay lessors and expand its network both in domestic and international markets.

Now, the company will evaluate the right time to file DRHP again and wait for the market to stabilise, a company spokesperson said over the phone.

Challenging Times

The inability to raise money has hit the airline at a time when the industry itself is going through one of the most difficult phases in history due to the pandemic.

Go First's weekly flights have reduced significantly, several aircraft are sitting idle due to supply-chain issues and losses have widened.  

The carrier is operating 33 aircraft out of a fleet of 60, as supply of engines has remained limited.

The company said it has received 17 engines from its supplier and more planes from the fleet will fly in the coming months.

While total outstanding loans currently stand at Rs 5,600 crore, the company's loss widened to over 1,800 crore in FY22 from Rs 870 crore in FY21, according to ratings firm Acuite.

The ratings firm has revised its outlook on the company to ‘negative' from ‘stable' due to the continued losses in FY22 and the first quarter of the current financial year, which has led to higher dependence on external borrowings and Wadia group's support.

And it is not just Go First. Even the listed counterparts SpiceJet Ltd. and IndiGo's parent InterGlobe Aviation Ltd. have reported losses in 10 out of last 11 quarters as rising jet fuel price and a depreciating rupee keep the industry under pressure.

More To Come

While Go First remains hopeful of stock exchange debut, the company's operations may take some time to show performance that may raise investor interest in the carrier.

Even from a historical and global perspective, the aviation industry doesn't fare well if one is to rank it among industries to invest in for good returns.

“Few investors in aviation have made money over long term,” Choksey said. “Retail investors should keep aviation stocks lower in their preferences, as they are less likely to understand the industry's complexities.”

While the passenger traffic has hit record highs, jet fuel prices have stabilised, and rupee decline has eased; the future course of airlines like Go First remains challenging.

Acuité said the company may continue to incur losses in medium-term leading to higher dependence on external borrowings or support from group.

“The outlook may be revised to 'stable' in case the group registers higher than expected growth in revenue and returns to profitability along with lower dependence on the group for funding its operations,” it said in a press release in October.

The Wadia group is expected to invest Rs 510 crore in Go First to meet the carrier's working capital needs, according to a report in the Business Standard.

Predictability of business is considered a key ingredient for checking the fitness of a company looking to go public, which is a rare one in airline business with external environment throwing big surprises every now and then.

Until that changes, airlines in India may have to prove their mettle consistently before asking investors to believe in their story.