Crash landing

Engines are not the only problem for Go First

The bankruptcy filing of Go First airlines highlights the inherent stress in the civil aviation industry. India is the world’s third-largest aviation market, and is expected to grow quickly through the next decade. It will be fuelled by economic growth and the reach has been expanded by the Regional Connectivity Scheme. The sector employs roughly 4 million people and Indian carriers have over 1,100 planes on order with deliveries of 100-odd new planes expected annually. But the environment of high operational costs and supply-chain issues has left the airlines struggling. They suffered massive losses when the pandemic was at its peak. Go First has claimed engine failures pushed it into bankruptcy. Engine failures have grounded 25 of Go’s Airbus A320Neos. That’s half the fleet. The manufacturer, Pratt & Whitney (P&W), claims it has not been able to supply new engines due to upstream supply-chain problems. Other airlines such as IndiGo, Air Baltic, and Turkish Airlines have also pinpointed P&W engine failures as the cause of grounded fleets.

Go First has also filed a suit against P&W in Delaware, asking for Rs 8,000 crore in compensation and telling it to comply with an order by the Singapore International Arbitration Centre, which asked P&W to replace at least 10 engines by April 27 this year. Go First owes roughly Rs 10,000 crore in dues to financial and operational creditors. Even if it restarts operations after cancelling flights for three days, it cannot generate the cash flows needed to service those dues unless the entire fleet is up and running. It is also not the only Indian airline facing difficulties. SpiceJet is limping along, with about Rs 6,000 crore in accumulated losses, though it reported a small profit in the third quarter of 2022-23. Jet Airways has literally not been able to get off the ground after undergoing an enforced change of ownership. Its chief executive office-designate has just quit.

IndiGo, the largest airline, has at least 25 aircraft grounded due to P&W engine issues but it has a large enough fleet to maintain services. It reported good results in Q3FY23, but made losses in FY21 and FY22, and in the first half of FY23. Air Vistara and Air India are sustained by the deep pockets of Tata Group and Singapore Airlines. New entrants like Akasa Air and Fly91 have been in operation not long enough for aviation analysts to come to meaningful conclusions about their viability. Air traffic in March 2023 exceeded pre-Covid levels. However, operating expenses remain high. Fuel costs are a critical input. Although crude oil prices have moderated a little, they are still elevated and likely to remain so in the foreseeable future.

The aviation sector in India has gone through many boom-bust cycles since deregulation. Early entrants like ModiLuft, East-West, or Damania failed to sustain operations and, later, Kingfisher, Air Deccan, and Sahara collapsed. Air India and Indian Airlines (which were later merged) continued to function only because the government was prepared to absorb the losses. Notably, celebrated investor Warren Buffett once said if a far-sighted capitalist had been present at Kitty Hawk, North Carolina, when the Wright Brothers launched the first flyer, he would have shot them and done future generations of investors a huge favour. He was only half-joking. This industry has always offered a bumpy ride. The current turbulence is not new and Go First is unlikely to be the last one grounded.