Go First Bankruptcy: How Wadia’s Holding Company Couldn’t Save The Airline

Nusli Wadia’s flagship airline, Go First, announced on Tuesday that it has been forced to file for voluntary resolution and protection under Section 10 of the Insolvency and Bankruptcy Code.

Go First had filed with the Securities and Exchange Board of India for an initial public offering and had gotten a nod for the same from the markets regulator in 2021. The company, having filed all documents as part of the process, had to defer the issue owing to the Omicron wave and its severe impact on international travel and then the Russia-Ukraine crisis, which began in early 2022.

Its performance for FY22 rose on the back of a low Covid-19 base. Revenues had nearly doubled to Rs 4,183.77 crore from Rs 2,171.75 crore. The company reduced its Ebitda by 42.46% to Rs 164.30 crore from Rs 285.55 crore, but its losses widened to Rs 1,807.91 crore from Rs 870.48 crore for the year ending March 2022.

In the last two years, a large part of the airline's funding has come from the Wadia Group company—Bombay Burmah Trading Corp. Ltd. The company raised its stake in Go First from 3.37% in March 2021 to 32.61% at the end of March 2022.

This stake further increased after the recent fund raise of Rs 210 crore via compulsory convertible preference shares from Baymanco Investments, a Mauritius-based subsidiary of Bombay Burmah Trading Corp. These CCPS, upon conversion, will increase Bombay Burmah's stake in the airline to 37.14%. By the end of March 2022, the airline was classified as an associate.

Go First said promoters infused funds to the tune of Rs 3,200 crore into the airline in the last three years, of which Rs 2,400 crore were injected in the last 24 months, including Rs 290 crore in April 2023.

It is unclear whether the April 2023 fund raise was from Bombay Burmah or a different promoter entity.

Go First, at the end of March 2022, had a negative net worth of Rs 2,370 crore. This would have widened during FY23 as engine issues plagued normal operations, leading to a lower operational fleet and an eventual reduction in market share to nearly 7% from over 11%.

As of December 2022, at the time of fund infusion by Bombay Burmah, the company disclosed that its secured loans amounted to Rs 2,023.14 crore and its unsecured loans amounted to Rs 2,356.2 crore, as shown in filings with the Ministry of Corporate Affairs. In addition, there are other creditors as well.

The airlines, which operated in 29 destinations in India and 11 destinations globally, saw their on-time performance sharply dip in the second half of the fiscal year 2023. Financials for FY23 were not available.

While the company attributes the current financial stress to Pratt & Whitney engines, it also stated that the current stance of the U.S. engine maker will lead to further engine failures, making the operations unviable.

The grounding of close to 50% of its A320neo fleet on account of Pratt & Whitney’s engines has impacted Go First to the tune of Rs 10,800 crore. It is unclear how much more capital the promoters are willing to infuse into the airline while they wait for Pratt & Whitney to respond.