Friday, May 12, 2023

Go First insolvency: Why the airline was staring at a crisis for long

The signs of any crisis are long visible before it explodes in the face and the current mess at Go First is no exception. Be it frequent delays to staff salaries, an attrition rate that is among the highest in the Indian aviation sector or frequent postponements to the company’s plans of listing, the writing has long been on the wall. When the Mumbai-based low-cost carrier (LCC) filed an application for voluntary insolvency resolution with the arbitrator, the National Company Law Tribunal in Delhi on May 2, it didn’t leave aviation observers surprised.    

Squarely blaming Pratt & Whitney (P&W) for the decision to temporarily suspend operations, Go First in a statement said the US-based engine maker had refused to comply with an award issued by the Singapore International Arbitration Centre (SIAC) for the despatch of 10 engines per month until December 2023. The grounding of close to 50 per cent of the carrier’s A320neo fleet had resulted in it incurring “`10,800 crore in lost revenues and additional expenses,” the statement said. The airline currently has a fleet of 54 Airbus A320neo and five Airbus A320ceo, according to its website. Several other airlines—including Lufthansa, Air Hawaiian and Air Tanzania—have reported problems with P&W’s geared turbofan engines, especially under hot and dusty conditions.

Citing faulty engines as a major reason behind Go First’s failure, an aviation industry insider, requesting anonymity, tells Business Today, “The above incidents with Go Air are just symptoms of low revenue and high costs that have set in motion a deeper operational malaise comprising lack of capital and profitability. Engines are a big part of that.” However, Satyendra Pandey, Managing Partner at aviation services firm AT-TV, sees engine defects as only one part of the problem. “No doubt the engines have had issues, but what is not being spoken about is alternative capacity plans, contingency plans and flying with a substantially reduced schedule.” IndiGo, the country’s largest carrier by fleet and market share, has so far successfully navigated the challenge despite having to ground over 30 A320neo aircraft for the same reason. Similarly, LCC SpiceJet managed to avoid any major cancellations after it was asked by the aviation regulator the Directorate General of Civil Aviation (DGCA) to operate only 50 per cent of its scheduled flights for more than two months after technical issues were reported with its fleet of Boeing aircraft in July last year.

12/05/2023 Manish Pant/Business Today

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