GoAir IPO | Airline says COVID-19 has put a serious threat to its going concern

Wadia group-owned GoAir has filed the Draft Red Herring Prospectus (DRHP) for its initial public offering (IPO). On May 13, the airline rebranded itself as Go First, as part of the preparations for the listing amid a rocky period for the aviation sector due to the pandemic.

In the DRHP filed with Sebi, Go First noted that COVID-19 has had an adverse impact on its business, operating results, financial condition and liquidity. The duration and spread of the pandemic or another pandemic could result in additional adverse impact on its business, it added.

Since mid-March 2020, the outbreak of COVID-19 has resulted in a widespread and global health crisis, which has led to restrictions on travel and public transport and has severely impacted air travel.

The company said its departures in December 2020 were just 63 percent of its departures in the year ago, while Available Seat Miles (ASKs) stood at 73 percent of the pre-COVID levels for the quarter ended March 2020.

As a result, the airline recorded a net loss of Rs 4,706.9 million in the nine months ended December 31, 2020. Given the sharp loss due to COVID-19 the company' net worth has dipped in the negative territory. For the aforementioned nine months, its current liabilities exceeded its current assets by Rs 43,625.8 million, resulting in a negative net worth of Rs 19,615.0 million. This has put a serious question on its going concern, the company said.

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"In addition, due to the adverse impact of COVID-19, we were unable to make payments of our aircraft lease agreements, supply agreements and agreements with other service providers and have received certain notices for delayed payments or non-payments," GoAir said.

In order to cut expenses, GoAir introduced graded pay cuts for management staff that were working and not on leave without pay, starting with 50 percent for the chief executive officer extending down to 5 percent.

"From April 2020 to June 2020, approximately 3,800 employees were put on furlough." However, the company has started reemploying since.

GoAir also had to raised  Rs 970 million as equity from its promoter the Wadia group and $50 million from Go Singapore during fiscal 2020.

In Fiscal 2021, the company availed an additional fund-based (including non-fund based sub-limits) line of credit of Rs 5,000 million from ICICI Bank. and an additional facility of Rs 3,420 million from Deutsche Bank AG.

Additionally, it raised Rs 5,460 million as equity from Baymanco Investments Limited, a member of its Promoter Group.

GoAir said it was unable to fulfil its rental payment obligations under aircraft lease agreements during the period from February 2020 to March 2021, which can result in selling or re-leasing of the aircraft.

"For most of these lessors, we have been able to negotiate and execute deferral agreements addressing the aforementioned defaults. However, as of the date of this DRHP, we are yet to enter into deferral agreements with four lessors that have issued default notices to us. These notices relate to 24
aircraft and the total amount claimed under these notices is $35.75 million."

Due to COVID-19, GoAir was also unable to pilot ultra-low-cost carrier (ULCC) model given its high fixed cost and low profit margins in the current times.