Symptomatic stall : On the Go First crisis and the aviation industry
The aviation industry needs policy changes and regulatory overhaul
Go Airlines, the Wadia Group’s low-cost carrier, this week became India’s first domestic airline since the outbreak of the COVID-19 pandemic to go into a mid-air stall and seek bankruptcy protection. For an airline that rebranded itself as Go First less than two years ago in a bid-to make a fresh start, with CEO Kaushik Khona declaring at the time “our consumers come first” and “...our confidence in the brighter tomorrow”, the carrier’s abrupt announcement of a suspension of operations is rich in irony. While it has laid the blame squarely on “the ever-increasing number of failing engines” supplied by Pratt & Whitney, which it claimed had resulted in half its Airbus fleet being grounded, the engine problems could at best be termed the proximate cause. Go First’s financial woes predate the fleet troubles and the pandemic and are largely symptomatic of the malaise afflicting the wider industry. Given the high capital and operational costs, the commercial air transport industry operates with wafer thin margins. Added to this, the swelling competitive intensity in India’s budget airline sector a decade and a half ago saw rivals adopt aggressive pricing strategies to gain market share that stretched balance sheets and made companies more vulnerable to shocks.
If the lockdowns announced in India in March 2020 and the tight travel curbs to combat the spread of the SARS-CoV-2 virus dealt a deeply bruising blow to all contact intensive sectors, last year’s surge in crude prices in the wake of the Ukraine invasion combined with the rupee’s depreciation against the dollar sent aviation turbine fuel (ATF) costs soaring for domestic carriers. And when air travel demand rebounded last year as the pandemic-linked restrictions were lifted, Go First found itself already hobbled with almost a third of its fleet having been grounded by December 2020, ostensibly due to engine issues. With the airline now moving the National Company Law Tribunal for initiation of insolvency proceedings and an accompanying moratorium on outstanding credit, aircraft lessors have opposed the carrier’s resolution plea and instead sought aircraft deregistration and repossession. The outcome in the NCLT notwithstanding, the developments hold a mirror to the industry’s systemic infirmities. Rival carrier SpiceJet is simultaneously facing an irate overseas lessor who has moved the insolvency tribunal over unpaid lease rentals. The government knows the issues dogging the industry including a tax structure that keeps ATF costs prohibitive and a regulatory apparatus that is outdated. The onus is on the Centre to find long-term policy solutions if it wants India’s struggling airlines to reach cruising altitude