Go First Airline Insolvency: Why did the company crash?

🎵🎶Go First planned an IPO bash, 
Go First had a company crash.🎶🎵

India has secured its position as the world's third-largest domestic aviation market, and experts predict that it will surpass the UK to become the third-largest air passenger market by 2024.

By 2036, India is expected to have more than 480 million air travellers, which is higher than the combined number of air travellers in Japan and Germany. The industry has no doubt undergone a remarkable transformation in recent years, with an increase in the number of airlines, airports, and passengers. 

Well, every rose has its thorns. Despite soaring aspirations, many airlines have struggled to stay grounded in this industry. Looks like we have another company approaching its final descent.

Go First Airlines: A Brief History

Go First, formerly known as GoAir, is a low-cost airline based in Mumbai, India, owned by the Indian business conglomerate Wadia Group. The airline was founded in 2005 by Jehangir Wadia and started operations in November of the same year. It operates flights to about 27 Domestic and 8 International Destinations.

According to their website, they started with two leased Airbus A320 planes in 2005 and have since expanded their fleet to include around 59 aircraft. There was a period when many airlines struggled to stay afloat and even collapsed, GoAir made a profit (even though the amount was not very significant), which was a remarkable accomplishment. 

Evolution of the Business 

Initially, the airline operated a fleet of leased Airbus A320 aircraft and served a handful of domestic destinations in India.

In the years that followed, Go First continued to expand its route network and increase its fleet size. The airline added more Airbus A320s to its fleet and began flying to new destinations across India.

They always operated as a low-cost carrier, offering affordable fares and a no-frills approach to air travel.

In May 2021, the airline rebranded itself as Go First as part of a more significant effort to position itself as a more customer-centric brand. The rebranding included a new visual identity, a revamped website and app, and a new tagline. 

Overall, Go First evolved from a small startup airline to one of India's leading low-cost carriers, with a growing network of destinations and a commitment to providing affordable and convenient air travel to its customers.

Go First IPO

After rebranding its name from GoAir to Go First in 2021, the airline announced raising around ₹3,600 crores for its expansion plans and paying off its debts through an IPO.

The IPO was expected to be launched in 2021. The DRHP was filed on May 14, 2021, and they even received a green signal from SEBI by August.

Go First was planning to use the proceeds from the IPO to expand its fleet and network, repay its debts, strengthen its balance sheet, and thus increase its market share in the Indian Aviation Industry. 

Unfortunately, IPO ke announcement ke jagah company ko insolvency ka announcement karna pad raha hai!!

Comparison with Key Players

Let’s take a look at the Market Share of various players in the Indian Aviation Market:

Go First, even though known for its affordable fares and no-frills approach to air travel, couldn’t capture a significant portion, whereas IndiGo had the maximum share at about 55.40%.
Both GoAir and IndiGo are two prominent airlines in India that were both founded around the same time in the mid-2000s. While today IndiGo is becoming a major player in the Indian aviation industry, GoAir has struggled to achieve the same level of success. 

IndiGo has been able to expand its reach by offering affordable fares, on-time performance, and maintaining a strong balance sheet. In contrast, GoAir has had a tough time keeping up with the competition, with limited growth and frequent changes in leadership. 

Reasons for the Downfall

Filing for voluntary insolvency is often the ultimate outcome of a series of unfortunate events for a company.

The possible reasons may include factors such as rising fuel costs, intense competition, economic downturns, changing consumer preferences, and unforeseen events like the pandemic.

I believe that the possible reason for this Financial Turbulence can be:

1. The operational challenges that they are facing due to the shortfall in supply of engines by Pratt & Whitney, an aerospace company. This has led to the grounding of 28 aircraft. To which P&W has alleged that Go First has a long-standing history of failing to meet its financial obligations to them.

2. The company incurred a significant amount of debt during the pandemic and also reported loss of ₹1278.60 crores in 2020 and inability to raise funds through an IPO may have been contributing factors to its downfall.

3. GoAir had experienced frequent changes in its top-level management since its inception, which might have hindered its ability to achieve stability and sustainable growth.

4. Company follows a cash and carry approach, which means that a company needs to have cash in hand to purchase goods or services. And since Go First does not have cash, it might struggle to operate under this model. 
They may need to take on additional debt or find other sources of funding to continue operating. Alternatively, it needs to restructure its operations to reduce expenses and improve cash flow. 

Ultimately, the company's ability to function will depend on its ability to manage its finances and generate sufficient cash flow to support its operations.

The Bottom Line

The closure or bankruptcy of one company may have a ripple effect on the entire industry, as it may lead to consolidation and increased competition. It also highlights the importance of proper management and financial planning to navigate these chaotic times. The aviation industry needs to innovate and adapt to the changing times to ensure sustainability and profitability. 

It will also affect the confidence of investors, lenders, and other stakeholders in the industry, leading to a decrease in investment and capital inflow, which can make it difficult for other companies to raise funds and grow. In addition, the shutdown of a company can also result in job losses for employees.

Therefore, while the impact of the downfall of one aviation company may not be significant in the long term, it can certainly have short-term repercussions and create a sense of uncertainty in the industry.