Gutsy gambit

Even as his own airline struggles to stay afloat, SpiceJet’s chairman and managing director has made a daring bid for bankrupt Go First. Anjuli Bhargava reports from India.

February 1st 2024

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As India’s aviation sector clawed its way out of the doom and gloom of 2020 and 2021 to better times in the last two years, the country’s airlines have coped differently to the pandemic. Read More »

As had been predicted by most pundits, the smaller players - Go First, SpiceJet and Air Asia India - struggled. After failing to raise funds through an IPO, Go First entered bankruptcy in 2023.

Another faltering carrier, AirAsia India, was absorbed into Air India Express after the Tata’s bought the Air India group in October 2021.

As soon the pandemic hit, many argued it was touch and go for SpiceJet because it did not have the corporate backing of Vistara or Air India nor the strong cash position and balance sheet of IndiGo.

And, as was largely predicted, the airline had to whittle down in size and stature from its heydays of 2017-2018 when its fleet crossed 100 aircraft for the first time.

It’s on time performance has taken a beating as has its safety record with many technical and safety glitches plaguing operations. Its market share dwindled and is now hovering in the 5% range, not far above Akasa, the youngest player in the game. Yet the airline’s airplanes remain relatively full and load factors high. For a certain profile of Indian fliers, SpiceJet remains their go to airline. If not by choice by habit.

What remains a mystery - many refer to it as an enigma – is how SpiceJet’s chairman and managing director, Ajay Singh, has managed to keep the airline afloat, ostensibly with no cash, for at least three years. Rumors of political money and connections continue to be unproven but it could be argued there is no other explanation for its resilience.

Moreover, Singh manages to stay in the eye of the storm as one of the most vocal of airline CEOs. He is constantly lobbying and representing the industry’s views to the authorities and at any forum.

For at least the last two years, Singh has been claiming he will clean up his affairs. He has been in firefighting mode, but the spring cleaning he promised moved at snail pace in 2022 and most of 2023. During that time, SpiceJet steadily lost market share as it battled with its weakening financial position on several fronts. It managed to secure some Emergency Credit Line Guarantee Scheme (ECLGS) funding from the government during the pandemic, but by November 30 last year the airline had 57 aircraft endorsed on its air operator’s certificate, but 26 of them were grounded for one reason or another.

Singh then decided to seek fresh funds. On January 26, SpiceJet allotted shares and warrants worth Rs 744 crore (just below US$100 million) on a preferential basis in a first tranche. A second tranche is expected in due course.

Armed with a slightly healthier balance sheet, Singh, known for his never say die spirit, has put in a joint bid with partner Nishant Pitti, to revive Go First with Rs 600 crore of funds, in their personal capacity. The duo plan to pay bankers by monetizing two land parcels Go First owns in Mumbai.

According to sources, Go First also has won an arbitration award of US$300 million against engine OEM, Pratt & Whitney, which is yet to see the light of day.

Go First owes banks around Rs 6,521 crore, of which Rs 1,300 has been drawn under the government’s emergency credit line guarantee scheme (ECLGS). The airline’s total debts are calculated to be, after adding up the claims of vendors and lessors, approximately Rs 11,463 crore.

If approved, media reports Singh and Pitti plan to re-start Go First with a minimum of 15 aircraft and are in talks with lessors. Before it was grounded, Go First had 54 aircraft. Twenty eight of them were grounded due to Pratt & Whitney engine issues and 26 were operational. Several lessors have filed court petitions to repossess their aircraft, so the duo must engage with the lessors to keep the airliners they need.

Singh argues that “apart from coveted slots at domestic and international airports, international traffic rights and an order for more than 100 Airbus neo planes, Go First is a trusted and valued brand among flyers”.

Industry sources believe the only way for any of the smaller players to survive post the Air India sale and the airline industry’s consolidation is by merging or joining forces in some manner.

Based on that line of analysis, the Go First bid might be the last trick Singh has up his sleeve to keep his airline afloat. Whether he has bitten off more than he can chew will be revealed in due course.