GoAir revives IPO plan as aviation stocks soar
New Delhi: Wadia Group-owned Go Airlines (India) Ltd, which operates the low-fare airline GoAir, is readying itself for an initial public offering (IPO) as investors have turned bullish on airline stocks, its top executive said.
“The IPO window is not off at all, we are just looking at the right timing,” Wolfgang Prock-Schauer, chief executive of the low-fare airline said in an interview. “Warren Buffett has gone on to aviation which again sends a positive signal. Investors are coming in.”
Buffett’s Berkshire Hathaway Inc., recently invested $9.3 billion in four US airlines, with investments topping $2.1 billion in American Airlines, triggering a rally in the stocks of airlines in India, including IndiGo (Interglobe Aviation Ltd), SpiceJet Ltd and Jet Airways (India) Ltd.
In 2015, Go Airlines had indicated it was keen to look at an IPO once its fuel-efficient Airbus A320neo planes start joining its fleet. These planes have now started joining the airline’s fleet even as it has doubled the number of planes on order from 72 to 144 this year.
Most Indian airlines have been reporting profits for the last two fiscal years as lower fuel prices, which account for nearly half of their expenses, reduced costs.
GoAir clocked profit of around Rs166 crore in 2015-16, according to aviation consulting firm CAPA. In 2014-15, it reported a profit of Rs218 crore on operating revenue of Rs3,066 crore, according to aviation regulator Directorate General of Civil Aviation (DGCA).
“With our performance, we will be an attractive investment whatever time we chose,” Prock-Schauer said, without giving details.
He said the timing of the IPO will be decided by the owners (Nusli Wadia and son Jeh Wadia) who also control textile major Bombay Dyeing and biscuit maker Britannia Industries.
Prock-Schauer ruled out quitting the airline when his contract expires.
“There is nothing of that sort. Lot of work ahead,” he said. “My job is to run a good airline and produce a profit.”
Airlines in India have hired experienced foreign CEOs to boost investor confidence especially in areas of operations, aircraft leases and the firm’s overall books.
GoAir, which was founded in 2006 and has a 24 aircraft fleet and 8% domestic market share, will embark on its biggest expansion in the coming fiscal year, adding one aircraft a month to increase its size to 37 planes by March 2018.
IndiGo, which started at the same time, has 129 planes and a 40% local market share. It plans to add a fleet of the size of GoAir by next fiscal from its 400 plane-order.
GoAir will show investors its fuel efficient planes which are currently saving 14% in fuel costs, said a person who tracks the airline closely, requesting anonymity.
“When some of these planes replace its existing fleet, the airline will see reduced costs,” the person said. “The airline will also show how it will generate cash from sale and lease back of the planes. Airlines get about $3-5 million upside when they order in bulk and sell the aircraft closer to date of delivery to an aircraft lessor.”
The Indian air passenger traffic is growing at the fastest pace in the world. Domestic air passenger traffic has already doubled in the past six years to nearly 100 million.
GoAir also has the advantage of having flight slots at the congested Mumbai airport, the person said.
The airline plans to start international operations this year, with flights to the Gulf, South-East Asia and Central Asia.
The last airline IPO was that of IndiGo owner InterGlobe Aviation Pvt. Ltd which raised Rs3,000 crore at Rs765 a share in 2015.
Still, the new Airbus A320neo planes GoAir is buying are also facing challenges. The Pratt & Whitney engines have been riddled with issues including recent engine fires.
“We have had meetings with Pratt and Whitney and Airbus; both of them have to find a solution. I think technical issues will be sorted out in one and half years; in the meantime, they will support us properly with spare engines and other support needs to be there so we can overcome the initial phase and don’t have any flight disruptions,” Prock-Schauer said.
DGCA has already asked IndiGo and GoAir to investigate the engines thoroughly.
It is also likely that airlines may seek compensation from engine manufacturer depending on how the contract is framed.