BackGo’s stop: Another lurch towards a seller’s market
A dispute over a contract makes Go First’s insolvency hard to resolve swiftly and the airline’s future look bleak. India’s aviation market won’t brighten up till it achieves a better balance
PremiumAs with economics, there is no free lunch aboard planes flown by no-frill airlines, but a free lurch is another matter in civil aviation. The latest jolt was Tuesday’s insolvency filing by Go First, an air carrier owned by the Wadia Group. With about half its aircraft unable to fly on account of engine trouble, the company ran short of cash, suspended flights (for three days) and sought to hold off creditors—chiefly lenders and plane lessors—by submitting itself for resolution under India’s Insolvency and Bankruptcy Code (IBC). With its future under a cloud, we should brace for turbulence. The basic purpose of an IBC fix is to find a new owner that can keep the business going or a way to redeploy bits and chunks of its assets. As an asset-shuffler into worthier hands, however, the IBC has been anything but smooth, let alone swift. The case of Go First is complicated by its arbitration battle against Pratt & Whitney’s (P&W) International Aero Engines, whose failure to keep its jets air-worthy stalled operations, according to Go. If anything, this tangle will make its case harder to resolve quickly. And the exit of an airline with a market share of nearly 7% in India would be particularly bad news at a time daily air traffic has been scaling new highs, seat supply already looks stretched and fares rule so high.
Go First has squarely laid the blame on what it called the “ever-increasing failure" of engines that power its fleet of Airbus A320neos. It alleges that P&W flouted an upkeep contract that required it to deliver solutions within 48 hours of engine failure and said that drastic IBC action would not have been needed had its supplier complied with orders from their Singapore arbitrator to supply it with ‘spare leased engines’ on a schedule that would have let it regain full strength by September. With much money already lost on account of a hobbled fleet, it said it was in no position to meet its financial dues. In a sign of its hope that it would stay airborne, Go First also filed a petition in a US court to enforce the arbitral award. On its part, P&W said it was committed to the success of its customers and was complying with the ruling. It had no details to offer. If this was about covid snarls in the supply of critical equipment for aviation, as observers suspect, we remain in the dark on when these might ease. All this has made Go’s future highly uncertain. Revival proposals may not surface till some of the haze over its actual capacity clears and so we can’t expect it to exit insolvency very soon once it gets admitted.
The shudders that Go’s IBC move sent around India were partly over how its exit could worsen today’s capacity crunch and stiffen fares further in a covid-scarred sector. While SpiceJet and others hope to plug some of the supply gap and we recently saw a new entrant in Akasa, we have lurched further over the past decade from a buyer’s to a seller’s market with every fold-up. While the Centre has helped ease the industry’s fuel-tax burden partially and privatized a cash sieve called Air India fully (relieving our skies of a distortion), overall rivalry levels remain too low for comfort. Jet Airways, which stopped flying in 2019, still hasn’t resumed. Ironically, its relaunch was held back by a muddle over its dues long after its IBC resale. Fleet additions by Air India and Indigo will take a while. The near-term outlook for a better balanced market looks gloomy. We’ll have to stay buckled up.
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