For GoAir, an IPO may be the cheapest route to raise funds

Wadia Group operated-GoAir's proposed plan for an initial public offering (IPO) in the coming days could be a frantic attempt by the promoters to raise funds at a time when the aviation sector has been devastated by the ongoing covid-19 pandemic.

"It seems like a desperate attempt (to raise funds) by the promoters as the Indian government is not bailing out airlines," said Nripendra Singh, research head and strategy consultant-aviation at Frost & Sullivan.

"IPO is possibly the cheapest way for the airline to raise money," Singh added.

At present, InterGlobe Aviation Limited (IndiGo) and SpiceJet Ltd are the only listed airlines. During the last one year, IndiGo's stock has gained 74.44% while SpiceJet has gained 70.71%, according to Bloomberg data.

Economic Times had last week reported that GoAir would file the draft red herring prospectus during the ongoing week. ICICI Securities, Citi, and Morgan Stanley have been selected as merchant bankers for the process.

The airline has already received a credit line of ₹700 crore to ₹800 crore from banks earlier this year. However, this may not be enough as Indian airlines are expected to incur net losses of about ₹21,000 crore during FY21 following the widespread disruptions caused by the covid-19 pandemic, and would require additional funding of up to ₹37,000 crore through FY23 to recover from their losses and debt, according to credit rating agency ICRA.

"In the last few years, GoAir has been very cautious to expand their operations. Also, a frequent churn in top management in the past few years, along with slow expansion plans, and other factors could have delayed IPO plans," said a former official with the airline, who spoke on the condition of anonymity.

"I believe putting professional management in place to run the airline was done in anticipation of an IPO," the person added.

Wadia Group-controlled GoAir, which started operations in 2005, had in March said that Jeh Wadia had stepped down as the managing director, while industry veteran Ben Baldanza had joined its board as vice-chairman.

Baldanza will work directly with the management team, comprising chief executive officer (CEO) Kaushik Khona and chief financial officer (CFO) Pankaj Chaturvedi to achieve the next phase of growth, GoAir had then said.

A second person closely aware of the company’s plans to go public, said that while the current macro environment may not appear to be the most conducive for an airline to launch an IPO, investors are willing to back airline companies as they expect vaccinations to bring economic growth and consumption back on track.

“Expectation is that the second wave will not last beyond June and then we will see a recovery. The IPO is an event that you will likely see within this calendar year,” said the person aware of GoAir's IPO plans, who requested anonymity.

“If you look at the US market, in the last two months two budget airlines have gone public. Investors are willing to bet on the aviation industry given the vaccination drive across the globe,” the person added.

Budget carriers Frontier Airlines and Sun Country Airlines went public in the US during the last two months.

GoAir reported a net loss of ₹1,278.60 crore in FY20 compared with a net profit of ₹123.34 crore during FY19 according to latest figures from the Ministry of Corporate Affairs (MCA).

According to figures compiled by research platform Tofler, the airline's net worth stood negative at ₹1,500 crore at the end of 31 March 2020 (FY20), while cash and cash equivalents stood at ₹112 crore.

The second wave of covid-19 infections could further precipitate a collapse of the domestic aviation sector and accelerate consolidation resulting in two to three airlines operating in the domestic sector, aviation consultancy firm Capa India said in a recent report.

A GoAir spokesperson didn't respond to queries.

"Investors have confidence in the market which is evident with the growth in the stock market," Frost & Sullivan's Nripendra Singh said, and added that success of GoAir IPO will depend largely on investor appetite rather than the condition of the (aviation) sector.