SpiceJet's bid for Go First: Can the ailing revive the dead?

"The employees and pilots have definitely not stuck around. The airline has pending dues to its aircraft lessors for the and also clear pending salaries. All GoAir has is the Air Operator Certificate/Permit, which SpiceJet also has," said Shakti Lumba, former vice president - flight operations, IndiGo.

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"Further, SpiceJet itself struggles with micro management and achieving economies of scale. Shallow pockets have held it back from achieving its true potential," he added. SpiceJet had a 14 percent market share pre-COVID, which has dropped to less than 10 percent.

According to insolvency filings, Go First, which blamed Pratt & Whitney's faulty engines for its fate, owes at least Rs 11,463 crore collectively to banks, international lessors and vendors. Of this, at least Rs 6,521 crore is owed to financial creditors, including Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank.

So, why is the Street excited?

The SpiceJet stock has gained over 27 percent in the past three sessions. Citing sources, CNBC-TV18 reported that according to SpiceJet promoter Ajay Singh, "A combination of SpiceJet and Go First will provide synergy and sustainable business model." Singh put in his bid after the last date to submit EoI lapsed.

In December, SpiceJet announced a fundraise of more than Rs 2,250 crore via convertible warrants as well as fresh equity shares. The Street believes this funding can be used for the Go First acquisition.

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Sanat Kaul, chairman, International Foundation for Aviation, Aerospace and Drones (India chapter), said that consolidation is good news for Indian skies. "India is a huge market. Smaller airlines should come together, increase their fleet and give tough competition to the biggies like IndiGo and Air India. It is all a numbers game, quality of service is secondary," he said.

According to industry experts, SpiceJet has 66 aircraft, of which 38 are in service and the rest are grounded. Before operations were stopped in May, Go First had about 56 aircraft in its fleet, of which 28 were operational.

Together, the fleet size will be more than 100, slightly lower than Air India's. Meanwhile, IndiGo's fleet size is more than 350.

"Go First had a decent 7-8 percent market share before halting operations. It also had good slots from Mumbai and Delhi. SpiceJet currently has about 6 percent market share and together they can command over 10 percent easily. From leasing to getting a flight off ground is about Rs 30-40 crore, including one month advance to oil marketing companies as well as airport charges. In Rs 1,000 crore, about 30 flights can easily be made operational," an analyst at a domestic broking firm said, on the condition of anonymity.

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Is the excitement justified?

Earlier Ajay Singh-led SpiceJet consortium had bid for Air India, too, which did not materialise. "If Go First was a going concern, then SpiceJet's interest would have made sense. There does not seem to be any synergy. By the time the entire process works out, the Go First would be out of operations for almost a year," said Dhiraj Mathur, advisor - aerospace and defence and ex-partner PwC.

Meanwhile, SpiceJet's market share has considerably deteriorated over the years. Jitendra Bhargava, former executive director, Air India, said that SpiceJet's performance has been dismal over the last 15 months, with its market share even slipping to 4 percent, below Akasa in some months. "It has been operating only 60 percent of the approved schedule," he said.

Over five aircraft lessors, including Willis Lease Finance, have also filed insolvency pleas against SpiceJet on account of non-payment of dues.

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Furthermore, a technical reason could also play spoilsport to Singh's game plan. In October, the corporate affairs ministry, through a notification, exempted aircraft objects from the applicability of the moratorium under the IBC. This was made effective retrospectively, which means that lessors can now repossess Go First's aircraft.

However, lessors' efforts have not been successful so far. Global leasing watchdog Aviation Working Group (AWG) has also downgraded India to “negative” from “positive” following lessors’ inability to repossess these aircraft stuck with Go First.

"I hear that few aircraft have been repossessed while the pipeline is a long one. If the corporate affairs ministry's notification is not being followed in true spirit, then it could mean higher leasing charges for all other aviation players, as well," said Mathur.

So, is SpiceJet bidding for slots? Bhargava says that too is far-fetched as Go First did not get any slots for the winter schedule of 2023 and it is unlikely that an acquisition will happen before summer schedule bidding for 2024.

For SpiceJet, the task will not be an easy one to take care of its own troubles as well as revive the Go First and start it from scratch.