Friday, May 14, 2021

GoAir IPO: What the Wadia airline will use funds for, risks, competition, and other key details

After multiple false starts, the Wadia group-owned Mumbai headquartered GoAir has filed for an initial public offering (IPO). Its umpteen attempts in the past to list on the bourses were abandoned even before this stage and this attempt comes when the Indian industry is going through its biggest and most difficult challenge ever. This also comes a day after the airline put a half-hearted effort in rebranding itself as GO First.

Like all airlines in the country, GoAir has been impacted by the pandemic. While IndiGo, India’s largest airline, has time and again said that it has not defaulted on lease payments, GoAir has listed out that they continue to be in payment default under several of their aircraft lease agreements. This could lead to legal action against the company.

The airline intends to raise Rs 3,600 crore via a fresh issue of shares. A subsequent chunk of this at Rs 2,015 crore, or 56 percent of the proceeds, are planned for prepayment or scheduled repayment of all or a portion of outstanding borrowings. Up to Rs 279 crore is earmarked for the replacement of letters of credit issues to certain aircraft lessors and Rs 254 crore is earmarked for repayment of dues to the Indian Oil Corporation. This would leave the airline with a little over Rs 1,000 crore for its future expansion and other corporate needs.

The repayment and prepayment would substantially reduce the total borrowings of the company that stand at Rs 2,955 crore and will help reduce its financial burden in future years.

This would considerably take away the largest chunk of finance costs from the balance sheet—which stood at Rs 855 crore last year and have been growing in the last few years.

While agencies like CAPA and SAP, which were commissioned to conduct an independent study of the airline have portrayed a bright picture of the future of Indian aviation, much of this optimism lies on the parameters that led to GR Gopinath starting Air Deccan. The pattern is the same—looking at the sheer number of people in India and tie it up with increasing incomes to postulate that there is a growing demand for aviation in India.

But what are the facts? Only a fraction of the population takes a flight each year, airlines like other industries grapple with price-conscious customers and aviation faces competition from other forms of transport.

14/05/21 Ameya Joshi/Moneycontrol

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