GOAIR
The airline was forced to delay an initial share sale worth Rs 36 billion ($440 million) last year while many of its planes were still idled and is now staring at imminent creditor defaults, with liabilities of Rs 114.6 billion ($1.4 billion). Image Credit: Source:Twitter, Courtesy:@goairlinesIndia

Go Airlines India Ltd. this week became the latest victim in the battle of the skies over India. It isn't the first high-profile carrier to fail and it won't be the last.

Buoyed by an emerging middle class hankering to fly, Indian airlines ordered billions of dollars worth of planes in the past few years, creating a cauldron of competition in what is now the world's most populous nation. Even before the industry was slammed by the pandemic, the fight for survival was intense.

The lure of aviation has proven particularly attractive "- and brutal "- for wealthy entrepreneurs, eager to enter a burgeoning sector and wooed by the status of owning an airline. Go, run by cookie-to-clothing magnate Nusli Wadia's group, is the third high-profile carrier majority owned by a billionaire that has ceased to fly in the past 11 years.

Also read

Here's what makes India both one of the fastest-growing and most difficult markets for operators, as well as suppliers such as Airbus SE and Boeing Co.

Why did Go stop?

Once the nation's third-biggest carrier, Go sought insolvency protection, saying that Pratt & Whitney had failed to supply parts and replacement engines needed for the Airbus A320neo jets that are the backbone of its fleet, even after it was mandated by an arbitration court to do so, forcing it to ground about half its planes. The engine-maker, a unit of Raytheon Technologies Corp., has disputed the claim.

But Go has struggled in the past as well, growing more slowly than rival IndiGo, which now controls over half the domestic market, and borrowing heavily to pay lease rentals, airport dues and salaries during the pandemic when its jets were grounded.

Copy of 2023-05-02T132828Z_753685166_RC2CQ0AG1PRH_RTRMADP_3_GO-AIR-IPO-1683038886950
Go First's CEO said earlier this week the airline is committed to its employees and is working tirelessly to get its operations back on track.

The airline was forced to delay a 36-billion-rupee ($440 million) initial share sale last year while many of its planes were still idled and is now staring at imminent creditor defaults, with liabilities of 114.6 billion rupees ($1.4 billion).

An Indian court on Thursday reserved judgment "- delaying a verdict in response to a plea by the carrier as it sought respite from lessors who want their planes back.

Who else has folded?

Kingfisher Airlines, founded by fugitive beer tycoon Vijay Mallya, ended operations in 2012 after failing to clear its dues to banks, staff, lessors and airports. Travel agent-turned-billionaire Naresh Goyal's Jet Airways India Ltd. hasn't flown since entering bankruptcy in 2019. Smaller regional carriers have also folded in recent years, including Air Costa, which surprised the aviation world in 2014 with an order for 50 Embraer SA jets worth $2.9 billion before things went belly up in 2017.

Why so many failures?

The reasons Indian airlines fold vary, but it mostly boils down to a mix of dirt-cheap fares, high taxes on fuel and cut-throat competition, all recently compounded by the disruption from Covid. A one-way ticket for a 90-minute flight from New Delhi to Mumbai on Sunday was offered for $79 on Booking.com, compared with $199 for a similar-length flight from New York to Atlanta.

1.1060771_371569715
Kingfisher Airlines, founded by fugitive beer tycoon Vijay Mallya, ended operations in 2012 after failing to clear its dues to banks, staff, lessors and airports

Some Indian states impose provincial taxes of as much as 30% on jet fuel. That's airlines' single biggest cost, accounting for more than half the expenses for some no-frills brands. Big players like IndiGo offer ultra-cheap fares on routes flown by rivals, using their reach to recoup costs on less-competitive legs and tapping economies of scale to lower overheads.

In addition, the Indian rupee has fallen almost 20% against the dollar since the beginning of 2019, raising the cost of leasing planes from abroad.

Does the government help?

Successive and largely populist governments have shied away from offering direct support to struggling airlines. Indeed, the government has sometimes even pushed carriers to cut fares further. The previous administration allowed foreign airlines to invest in local carriers, and urged states to reduce taxes.

Stock - Air India
Air India, bought back from the government last year by salt-to-software Tata group, plans to hire more than 4,200 cabin crew and 900 pilots this year as part of a major revamp which also includes orders for a record 470 jets.

The current government of Narendra Modi offered credit lines during the pandemic, but stopped short of outright bailouts. Modi has committed to steer the state away from business, proving his credentials by selling perennially money-losing flag carrier Air India Ltd. to Tata Group last year. Yet with Modi seeking a third term in elections next year, more airline failures could dent his reputation for championing industry.

So why do new airlines keep popping up?

The simple answer is the market's allure. Half India's population is under 30, and it could become the world's fastest-growing major economy in the coming years. The nation overtook Japan as the third-biggest domestic aviation market in 2016, and more local airlines are adding overseas routes.

India may have to cope with more than 1.3 billion passengers a year in the next 20 years, compared with fewer than than 200 million now, according to Sydney-based CAPA Centre for Aviation, which estimates that within 40 years, the Indian market will grow from the size of Las Vegas to the size of the US.

Also read

There's also a kind of cachet for rising Indian industrialists in owning a carrier. Mallya helped glamorize the business with Kingfisher "- a namesake of his best-selling beer brand "- handpicking flight attendants and hiring top models for marketing campaigns. Naresh Goyal's Jet Airways included Bollywood celebrities on its board, with annual general meetings full of poetry and adulation for Goyal and his family.

Only last year, now-deceased billionaire Rakesh Jhunjhunwala brought together a group of aviation veterans to operate the nation's newest airline: Akasa Air.

Can failed carriers recover?

While it's rare for cash-strapped airlines to come back, there is precedence. SpiceJet Ltd., then owned by billionaire Kalanithi Maran, was forced to ground its entire fleet after local oil companies refused to fuel its planes on credit. Yet, under the new ownership of its original co-founder Ajay Singh, SpiceJet has managed to stay afloat by renegotiating contracts and cutting loss-making routes.

What's next?

Air India's privatization has paved the way for more consolidation. Tata Group, which already held a majority in two other local ventures "- with Singapore Airlines Ltd. and Capital A Bhd.'s AirAsia "- has started to combine all the brands under one roof. That's no guarantee of survival in India. Jet Airways, which bought budget carrier Air Sahara, and Kingfisher Airlines, which took over Air Deccan, both went bankrupt.

As for Go, the court may appoint an official to oversee the airline while terms are renegotiated with lenders and lessors. The airline insists it will recover, but has canceled all flights until at least May 9. In the meantime the airline faces the risk of losing its trained employees and crew to rivals that are scrambling to fill vacancies created by the pandemic.