Will GoFirst defy history and be able to resume operations on May 16?

GoFirst NCLT

As VT-WDA landed in Delhi from Abu Dhabi this morning, it marked the beginning of a three-day hiatus for all GoFirst flights. What started as an unconfirmed two-day cancellation quickly snowballed into big news when the airline announced it was filing for insolvency, blaming engine manufacturer Pratt & Whitney for its troubles.

The airline has cancelled all flights until May 5th and promised to refund passengers who have booked tickets.

But, it continues to sell flights for May 16 and beyond. So, is there more than what meets the eye?

What does history suggest?

From Kingfisher Airlines to Jet Airways, many airlines have collapsed in India. Paramount, Air Costa, Air Pegasus, Air Carnival and Trujet are just a few names. All of them talked about making a comeback, selling stakes, infusing funds and raising cash. However, the fact remains that any airline that remained suspended for 24 hours in India has not been able to make a comeback.

Jet Airways went down in April 2019 after running out of cash with a lot of clamour at the time that the airline was too big to fail. It also became the first carrier to be referred under the Insolvency and Bankruptcy Code, then newly launched. Years on, it has not been able to defy history.

In the case of GoFirst, there have always been signs of financial distress, but the telltale signs, which were visible in the case of Jet Airways or Kingfisher Airlines, were absent. The airline was stretching its assets to the maximum to tide over the engine issues and operating flights, even with a delay. While its on-time performance suffered, passengers still reached their destinations. While not ideal, this certainly is better than cancellation.

To come out of hibernation on May 16th, the airline will have to defy history. Otherwise, May 2 will be no different than April 17, 2019 (Jet collapse) or Oct 20, 2012 (Kingfisher). Unfortunately, it is the employees who again will suffer the most if GoFirst fails to make a comeback. This, like the Jet Airways fall, has also come amidst election season and could dent the government's pro-business image. The civil aviation minister, in a statement yesterday, made it clear that the law would take its own course now. Details of the insolvency filing are not public yet.

In the earlier cases, capacity reduction was gradual and passengers were aware about the airlines’ troubles. For GoFirst, the suspension is sudden, impacting nearly 200 flights daily. At load factors in excess of 90 percent, 30,000-40,000 daily passengers will be impacted immediately, derailing the India growth story, which was beginning to look up.

From chasing a daily count of 4.5 lakh passengers, the numbers will barely cross 4 lakh now, which is lower than pre COVID average.

Restart soon, but how?

It is unclear how the airline will manage funds or get engines in a span of three days. With such news, passengers and travel agents will be wary of booking flights with the airline. The wounds of losses or money being stuck with Jet Airways are still fresh.

In the absence of a revenue stream, how will GoFirst start again on May 16th? Lessors, too, would have made a beeline to recover their aircraft, lest they get stuck in a lengthy process. The airline had already returned four aircraft in quick succession last month.

The airline’s press release talked about a restart in August/September — if Pratt and Whitney works in line with an emergency arbitration award by the Singapore International Arbitration Centre (SIAC) to provide GoFirst with replacement engines. This contradicts its website and booking sites, which list flights for sale beyond May 5.

Clearly, even those who had seen this coming did not expect it to happen so quickly and in this manner. The industry has been taken by surprise. But is the surprise element a tactic to put pressure on the engine manufacturer to deliver? For the government to step in and help? Or a ploy to respectfully close the business without slipping into complications?

Crores and crores of rupees have been pumped in by the Wadia group to keep GoFirst in the air. The last thing group patriarch Nusli Wadia would want is to see the airline take down the group’s valuation.

All in all, events from the past suggest Go FIRST will struggle to resume operations on May 16. But will it somehow defy history?