Go First Refutes Reports of Promoters Considering Business Exit Despite Cash Burn

Go First Airlines has refuted recent reports claiming that the Wadia Group, the owners of the Indian low-cost airline, was seeking to leave the aviation industry in order to cease its financial losses. An official from the company has stated that there are no plans to sell any shares or leave the aviation business.

The Wadia family remains committed to the business and plans to inject additional funds in the form of equity. The official expressed confidence in securing an additional Rs 600 crore in funds through bank loans and promoter equity by the end of April, with Rs 300 crore provided by each party.

The airline, which faced substantial operational difficulties in recent months, has seen half of its fleet grounded due to problems with Pratt & Whitney jet engines, leading to the highest annual financial loss in its history in FY22. While the Wadia Group has reportedly begun discussions with potential strategic partners, there is no indication that the company is considering selling a significant stake or completely exiting the airline.

Amidst a thriving domestic aviation market, the airline has been experiencing a significant decline in business over the past few months.

According to sources cited in the Economic Times, Go First obtained a loan of Rs 600 crore under the Emergency Credit Line Guarantee Scheme (ECLGS) from the government to fund its operations amidst a surge in air travel demand. In addition, the Wadia group has reportedly infused around Rs 3,000 crore into the airline over the past 15 months.

Go First

Despite the inflow of funds, an official familiar with discussions between the promoters and potential strategic partners disclosed to ET that the airline is facing a challenging situation. With its planes grounded, the airline is burning through cash, and the promoters have spent Rs 3,000 crore in the last 15 months to keep the business afloat. The official added that the company is exploring all options and has planned multiple scenarios, but exiting the airline business is a possibility.

Responding to queries from ET, a spokesperson for Go First acknowledged that the airline has faced difficulties and that a significant number of its aircraft are currently grounded. However, the spokesperson highlighted that the company has been able to sustain itself with support from all stakeholders, including the government.

One official, while refuting reports of a stake sale, affirmed that the promoters have steadfastly supported the airline since its inception and have infused liquidity whenever necessary. Another official stated that the pandemic and geopolitical turmoil in Russia and Ukraine have disrupted the aircraft engine supply chain.

Go First has faced operational challenges that have impeded its ability to capitalize on favorable conditions in the domestic aviation sector. Following the easing of mobility restrictions and the return to normal business routines, passenger load factors have surged in India. Unfortunately, nearly 60% of the airline’s planes remain grounded due to unresolved engine supply issues with P&W, resulting in significant losses despite the otherwise buoyant market. The airline had previously postponed its IPO plan due to the Omicron outbreak in late 2021, and later, when it was set to launch its public issue in March-April 2022, investors raised concerns about the Pratt & Whitney engine supply glitches.

Go First Plans

“During its roadshows, Go First received a very favorable response from investors. However, concerns regarding the engine supply issue persisted and impacted the airline’s IPO plans,” shared an investment banking source with ET.

Go First’s DRHP approval expired on August 26, 2022, marking the end of its plan to raise funds through an initial public offering. In May 2021, the airline filed a draft red herring prospectus (DRHP) to raise Rs 3,600 crore, with an additional Rs 1,500 crore to be raised through a pre-IPO placement. However, the pandemic delayed the IPO plans, and the company received the market regulator’s approval in August 2021, just before the DRHP’s expiration.

With the IPO funds, Go First intended to pay off a debt of Rs 2,015 crore and provide a cash deposit for securing lease rental payments and future aircraft maintenance for some of its aircraft lessors. Despite a 92% revenue increase to Rs 4,184 crore in FY22, from Rs 2,172 crore in FY21, the airline’s total borrowings surged to Rs 3,513 crore in FY22, from Rs 2,540 crore in FY21. This rise was due to a sharp increase in tourist traffic after the lockdown in FY21.

As a result of the delayed IPO plans and the expiration of its DRHP approval, Go First was unable to raise funds from the primary market.

Also Read: Latest Indian Aviation News and Aviation News

Private & Non-scheduled Charter operators in India

APPROACH PLATES

Go through, the Mall of Aviation

For the best HELIPAD CONSULTANCY