Go First insolvency filing: Operational inefficiencies & regulatory inadequacies can’t be overlooked

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

Amidst the plethora of good tidings in the recent months for Indian civil aviation - stupendous recovery with more passengers flying than before the COVID pandemic and most airlines recording 90 percent seat occupancy at relatively higher fares - has come a huge dampener. Go First Airlines, which commenced operations in 2005, has filed for voluntary insolvency, thus preparing to add its name to the already long list of airlines that have perished since the Indian skies were opened to private airlines three decades ago. One sincerely hopes that some solution emerges for it to stay in the flying business.

The reasons for Go First Airlines current state are somewhat different from the other airlines that ceased operations in the past. The causes have ranged from sustained unbearable losses (Kingfisher, Jet Airways) and promoters entering the airline business without adequate understanding, particularly in the initial years, etc. Go First has blamed Pratt & Whitney (P&W) for not providing/servicing engines, forcing the airline to ground almost half its fleet and suffering a resultant cash crunch.

Introspection Needed

As per Go First’s own statement: “The percentage of grounded aircraft due to P&W’s faulty engines has grown from 7 percent in December 2019 to 31 percent in December 2020 and to 50 percent in December 2022.” How much merit is there in the airline placing the entire blame at the doors of P&W? While no one would deny that an airline’s financial performance gets impacted if aircraft are grounded or are not in operation, there are other factors too that have accentuated its fall. Besides operational inefficiencies – on-time performance and lack of schedule integrity – the airline has seen instability at the very top with frequent changes of CEO.

Moreover, it was well known that the airline had been irregular in paying vendors and staff salaries. Considering that Go First commanded a market share of 6.9 percent, (down from 9 percent earlier), which translates to flying 28,000-30,000 passengers a day, the collapse will significantly impact passengers as fares will shoot up.

It is worth noting that the Go First Airlines' action of filing for insolvency has come at a time when the airlines are enjoying an exceptionally healthy operational environment, where the market has been seeing consistent growth notwithstanding higher fares and prices of air turbine fuel (ATF), a major operational cost component, had dipped. Can there be a better business environment than revenues going up and costs going down? The listed airlines Indigo and SpiceJet, particularly the former, are bound to report significantly improved financials for the January-March quarter.

DGCA Monitoring Inadequate

The unfortunate development has also brought into focus the role of India’s regulatory agency, the Director General of Civil Aviation (DGCA), which was prompt in issuing a show cause notice to the airline – within a couple of hours of Go First notifying suspension of flights. The show cause notice besides accusing the airline of failing to intimate it about the cancellations in advance, said: “Go First has failed to adhere to the approved schedule which would lead to passenger inconvenience thereby violating the provisions of CAR (civil aviation requirement)”.

The DGCA ought to ask itself whether it has a proactive monitoring system in place or it relies entirely on an airline’s initiative to notify it of operational incidents. It is indeed a fact that airlines have always faltered on this count. The recent show cause notice issued to Air India CEO & MD Campbell Wilson for not informing the DGCA of a woman being invited to the cockpit by a pilot is a case in point.

As a regulatory agency, the DGCA ought to have realised that Go First had problems on hand. Not only had the airline’s market share seen a gradual fall in recent months but the airline had also asked for fewer flights operation while seeking approval for its summer schedule. Alarm bells should have rung at this stage at the DGCA for closer monitoring.

Even as one awaits a formal statement from P&W, as the company has been painted as a devil, rightly or wrongly, the role of the Ministry of Civil Aviation also comes into focus. Since the government often pats itself for successes in the aviation sector, it could have played a role by summoning the top honchos of P&W on the simmering problem that Go First was facing since 2019. One can ask if Go First management had sought governmental intervention.

As the impact of the Go First action is bound to affect the industry, employees (who might lose their jobs if the issues are not amicably sorted out) and inconvenience passengers, not only should DGCA put an effective system in place but the ministry should also adopt a proactive approach and use its clout to get problems addressed by companies, like P&W in this case, if an airline’s efforts aren’t yielding results.

Jitender Bhargava, former executive director, Air India & author of ‘The Descent of Air India’. Views are personal, and do not represent the stand of this publication.