Story of Indian Aviation Sector: ‘Go First’ is the newest causality of bankruptcy after kingfisher and jet Airways
The Indian aviation industry has witnessed several cases of airlines going bankrupt in the past two decades. Some of the major airlines that have ceased operations due to financial troubles include Jet Airways, Kingfisher Airlines, Air Sahara and Air Deccan. The latest airline to join this list is Go First, formerly known as GoAir, which filed for voluntary insolvency on May 2, 2023.
According to its bankruptcy filing, Go First owes financial creditors 65.21 billion rupees ($798 million) as of April 30, 2023. The company said it was forced to apply for insolvency due to the non-supply of aircraft engines by Pratt and Whitney, which resulted in the grounding of half of its fleet of 56 aircraft. The airline also said it was facing a severe cash crunch due to the Covid-19 pandemic, which has severely affected the demand for air travel.
Since the collapse of Jet Airways in 2019, Go First is the first noteworthy airline in India to declare bankruptcy. Jet Airways was once India’s largest private carrier, but it collapsed under a debt of more than $1 billion and failed to secure a rescue deal from its lenders and investors. The airline is currently undergoing a resolution process under the Insolvency and Bankruptcy Code (IBC) and has received a conditional approval from the National Company Law Tribunal (NCLT) to restart operations.
How does a company go bankrupt?
An airline company can go bankrupt when it is unable to pay its debts or meet its financial obligations. There are many factors that can cause an airline company to go bankrupt, such as high operating costs, low demand, intense competition, regulatory hurdles, fuel prices, currency fluctuations, labor disputes, technical issues, etc.
The Companies that went Bankrupt
Go First Airways
An Indian airline company that has filed for bankruptcy is Go First Airways, formerly known as GoAir. Go First Airways filed for insolvency resolution proceedings in the National Company Law Tribunal on May 2, 2023 and suspended its flights for May 3 and 4. The airline blamed “faulty” Pratt & Whitney engines for the grounding of about half of its 61-plane fleet, which led to its market share falling to 6.9% in March from 8.4% in January.
The airline has sued Pratt & Whitney in federal court in the United States, attempting to enforce an arbitral ruling requiring the engine manufacturer to supply the airline. The airline had a severe funding crunch and was seeking to raise funds from potential investors. The Wadia Group, which owns Go First Airways, said it had no plans to exit the airline and was committed to its revival.
Jet Airways
Another example of an Indian airline company that went bankrupt is Jet Airways, which was once India’s largest private carrier. Jet Airways ceased operations in April 2019 after failing to secure emergency funding from its lenders. The airline had accumulated more than $1 billion in debt and was facing multiple challenges, such as rising fuel costs, low fares, overcapacity, fierce competition from low-cost carriers, and mismanagement.
The airline also faced legal action from its lessors, employees, suppliers, and regulators for defaulting on payments and violating norms. The airline’s revival plan was approved by a bankruptcy court in June 2021, but it is yet to resume operations.
Kingfisher Airlines
Kingfisher Airlines was another prominent player in the Indian aviation market, owned by liquor tycoon Vijay Mallya. The airline was known for its luxurious services and flamboyant image. However, it also suffered from high costs, over-expansion, debt burden and regulatory issues. The airline stopped flying in October 2012 and was declared bankrupt by a court in January 2013. Kingfisher Airlines owes more than $2 billion to various creditors.
Air Sahara
Air Sahara was one of the first private airlines in India, founded by businessman Subrata Roy of Sahara Parivar. The airline offered cheap tickets and wide connectivity in domestic and international routes. However, it faced stiff competition from other airlines, especially Jet Airways, which acquired it in 2006 for $545 million. The merger did not work out well and Air Sahara ceased to exist as a separate entity.
Apart from these large and popular airlines, several low-cost carriers have also gone bust in India over the years. Some of them are Air Carnival, Air Pegasus, Air Deccan, Paramount Airways, SpiceJet and IndiGo. These airlines faced challenges such as low passenger demand, high fuel prices, operational inefficiencies and regulatory hurdles.
Recovered Airline Companies
However, not all airlines that have gone bankrupt in India have been completely wiped out. Some of them have managed to recover or are in the process of recovery through various means, such as mergers, acquisitions, restructuring or revival plans.
IndiGo is also an example of an Indian airline company that has recovered well from the crisis caused by the pandemic. The airline posted a net profit of 6.2 billion rupees ($80 million) for the quarter ended March 31, 2023, compared to a net loss of 11.4 billion rupees ($147 million) a year ago. The airline attributed its turnaround to cost-cutting measures, improved operational efficiency, and increased passenger demand.
IndiGo also managed to overcome the engine issues that affected some of its Airbus A320 neo aircraft powered by Pratt & Whitney. The airline said that it had replaced all the faulty engines by January 2023 and had not faced any major disruptions since then. IndiGo also diversified its fleet by adding Boeing 737 MAX aircraft to its order book in February 2023.
Another Indian airline company that has shown resilience in the face of the crisis is SpiceJet, which was India’s second-largest carrier by market share as of March 2023. SpiceJet reported a net profit of 1.8 billion rupees ($23 million) for the quarter ended December 31, 2022, compared to a net loss of 5.7 billion rupees ($74 million) a year ago. The airline said that it benefited from lower fuel costs, higher cargo revenues, and better utilization of its fleet.
SpiceJet also resumed flying its Boeing 737 MAX aircraft in January 2023, after they were grounded worldwide for nearly two years following two fatal crashes. The airline said that it had received compensation from Boeing for the grounding and had renegotiated its contracts with lessors and vendors to reduce costs. SpiceJet also expanded its international network by launching flights to London, Dubai, Dhaka, and Male in late 2022 and early 2023.
Air India Crisis
Air India, the national carrier of India, has been undergoing a series of changes and transformations in the past few months. The airline, which was struggling with debt and losses for years, has finally found a new owner and a new direction. Here are some of the recent developments of Air India that you should know:
- On January 27, 2023, Air India was officially taken over by the Tata Group, one of India’s largest and most respected conglomerates. The Tata Group acquired 100% of the shares of Air India from the government for Rs. 18,000 crore (US$ 2.4 billion), including Rs. 15,300 crore (US$ 2 billion) for the carrier’s existing debt and Rs. 2,700 crore (US$ 360 million) cash to be paid to the government. This marked the return of Air India to its original founder, J.R.D. Tata, who started the airline in 1932 as Tata Airlines.
- After the takeover, Air India announced a series of initiatives to modernize its digital landscape, transform its customer engagement, improve its operational efficiencies and minimize its environmental impact. Some of these initiatives include migrating its Enterprise Resource Planning system to RISE With SAP, launching a new artificial intelligence-powered transformation program called Vihaan.AI, refreshing its inflight menu for international flights, launching a premium economy class on select flights and reducing single use plastic by ~80% on board all flights.
- Air India also secured loans from three banks – State Bank of India, Bank of Baroda and HDFC Bank – at a lower interest rate of 4.25% to refinance its old debt that was availed at over 10%. The airline also appealed in a US court against Devas Multimedia, arguing that a recent change in ownership prevents demands for recovery of arbitration awards ($1.2 billion) that were imposed on it by an international tribunal.
- Air India also expanded its network and operations by adding more flights to Dubai from Delhi and Mumbai, using TaxiBot operations at Delhi and Bengaluru airports to save ~15000 tonnes of jet fuel in three years, re-establishing its relationship with Sabre for distribution and network planning and integrating Air India Express and AirAsia India under its umbrella.
Latest developments in Indian airline industry
- Akasa Air, a new low-cost carrier backed by billionaire Rakesh Jhunjhunwala, is expected to place a large order for narrow-body and wide-body aircraft in 2023, as it eyes international growth. The airline, which started operations in October 2022 with four Boeing 737s, plans to have a fleet of 70 planes by 2026 and fly to destinations in Southeast Asia, West Asia, and Europe.
- Air India, the national carrier that was acquired by Tata group in December 2022, is set to revamp its fleet with a huge order of 470 planes worth $80 billion from Boeing and Airbus. The order, which is the largest-ever deal in the aviation industry, includes 250 narrow-body jets, 150 wide-body jets, and 70 regional jets. The new planes will replace Air India’s ageing fleet and help it compete with other airlines in the domestic and international markets.
- Airport infrastructure in India has also seen significant improvement in recent years, with the government aiming to have at least 200 operational airports by 2025. As of March 2023, India had 146 operational airports, heliports, and water aerodromes. Some of the new airports that were inaugurated in 2022 include Hollongi Airport in Arunachal Pradesh, Mopa Airport in Goa, Kushinagar Airport in Uttar Pradesh, and Darbhanga Airport in Bihar. The government has also launched the DigiYatra App in December 2022 to facilitate a contactless air travel experience for passengers.
