Will Cash-Strapped SpiceJet Ltd Save The Bankrupt Airline Go First.

SpiceJet promoter Ajay Singh has submitted a bid – with Busy Bee Airways Pvt Ltd – to acquire the troubled Go First carrier. Under the terms of the offer, SpiceJet will be the operating partner for the new airline, and will provide staff, services, and industry expertise. The airline will hope to leverage established infrastructure and operational capabilities to achieve significant revenue expansion.

About Spice Jet

• The SpiceJet brand was born in 2004, but its air operator’s certificate (AOC) dates back to 1993 when an air taxi company owned by SK Modi partnered with the German flag carrier Lufthansa, which was keen to capitalize on India’s recently liberalized aviation industry.
• Together, they created MG Express, which went on to operate passenger and cargo services under the name ModiLuft. ModiLuft took to the skies in May 1993, flying a Boeing 737-200 on lease from the German airline, and as India’s first major joint venture, expectations were high.
• However, rifts between the two owners over the airline’s finances ultimately caused ModiLuft to cease operations in 1996. The AOC, however, remained dormant.

SpiceJet’s early years

• In 2004, the entrepreneur Ajay Singh drew up plans to create SpiceJet, one of India’s first low-cost carriers. Instead of following the lengthy processes from scratch, Singh found a much quicker way to get his airline off the ground and purchased ModiLuft’s AOC, renaming the carrier SpiceJet.
• SpiceJet’s first flight departed from New Delhi (DEL) to Mumbai (BOM) on May 24th, 2005, using a leased Boeing 737-800. The airline’s choice of aircraft set it apart from its fellow low-cost competitors, IndiGo and GoAir (later known as Go First), both of which opted for the Airbus A320 family.
• SpiceJet operated its 737-800s with a maximum capacity of 189 passengers in an all-economy class configuration. This gave the airline a significant cost advantage over the likes of Air India and Jet Airways, and by 2008, SpiceJet had grown to become one of India’s five largest carriers.
• In 2010, SpiceJet ordered a further 30 737-800s and 15 DHC Q400s to support its ambitious expansion plans. However, as a result of operating in a highly competitive market while facing rising oil prices, the airline began to rack up losses in 2012. By 2014, SpiceJet was just days away from bankruptcy.
• Yet by 2015, SpiceJet’s recovery was well underway, boosted by the presence of Ajay Singh. As Managing Director, Singh helped to guide the airline through troubled times and back into profit. In 2017, SpiceJet sealed its commitment to the 737 MAX with an order for 100 examples of the type. However, only 13 were delivered before the aircraft was grounded in 2019.

On Going Recovery

• In a post-pandemic world, SpiceJet is rebuilding itself again, much like it did back in 2015. While its market share has decreased, it is performing much stronger financially and recently posted a $24.5 million profitfor Q1 2023, benefiting from increased passenger demand.
• Today, SpiceJet operates 58 aircraft, including eight Boeing 737-700s, 14 737-800s, nine 737 MAX 8s, three 737-900ERs, and 24 DHC 8-Q400s. Back in 2021, there were reports of the airline planning to take on two 777s from Boeing as compensation for the delays in the 737 MAX deliveries, although this did not come to fruition.
• SpiceJet has an outstanding order for 129 737 MAX 8s, which will help the airline reclaim its stake in the rapidly changing and highly competitive Indian aviation market.​​​​​​ The carrier has also expanded its international route network, which today includes Dubai (DXB), Bangkok (BKK), and Jeddah (JED).

About Go First

• The Go First budget airline`s owners — the Wadia Group — filed voluntary insolvency resolution proceedings before the National Company Law Tribunal (NCLT) sending shockwaves through the entire airline industry.
• Go First was plagued by a peculiar problem — the purported failure of the jet engine manufacturer, Pratt & Whitney, USA, to supply engines/spares for its aircraft that grounded nearly 40 percent of the fleet for several months before it was compelled to totally suspend operations from the first week of May 2023.
• While the DGCA slapped a show-cause notice on the carrier for its abrupt actions that created havoc with thousands of flyers, Civil Aviation Minister Jyotiraditya Scindia seemed sympathetic to Go First grappling with the engine problems. While assuring that the government was helping out as best as possible, Scindia also called upon Go First to make alternative travel arrangements for its flyers to avoid inconveniencing them.
• According to Go First the application under the IBC came after the “ever-increasing number of failing engines supplied by PW” which led to the grounding of around 25 of its 61-strong Airbus A-320neo aircraft, or almost 40 percent of its fleet by April 30, 2023. Go First said in a statement that the groundings due to faulty PW engines increased from 7 percent of its fleet in December 2019 to 31 percent in December 2020 and 50 percent in December 2022, and blamed PW for giving assurances but failing to meet them.
• In view of this, the beleaguered carrier suffered a whopping loss of nearly Rs 10,800 crore and even demanded Rs 8000 crore as compensation from the PW which could help Go First to meet its financial commitments/obligations. Besides, Go First had also coughed up Rs 5,657 crore to its lessors in the past couple of years comprising Rs 1,600 crore as lease rent for the non-operational grounded aircraft.
• Go First was also hampered by the PW reportedly not honoring the March 2023 award of the Emergency Arbitrator in Singapore to immediately provide the airline with at least 10 serviceable spare leased engines by April 2023 and 10 more per month till December 2023 to enable the carrier to resume full operations, financial rehab and survival.
• An aviation official said that after the NCLT processes the Go First application, it could appoint an interim Resolution Professional to take over and re-start operations, adding that a similar exercise in 2019 with another grounded private carrier failed to take-off.
• Though Go First`s promoters have pumped in around Rs 3,200 crore in the past three years, coming to a total investment of nearly Rs 6,500 crore, plus support from the government`s emergency credit line guarantee, all this failed to help as the airline kept incurring 100 percent of its operational costs and with a total loss of Rs 10,800 crores, it `succumbed`.
• In the NCLT plea, the 17-year-old airline which operated over 32 flights to 29 domestic and 10 international destinations, has sought several interim directions including restraining the lessors from taking back their aircraft, any adverse action by the DGCA, suppliers of essential goods-services, etc.
• Since launching low key operations in November 2005 as `GoAir`, Go First gradually climbed up to become the fifth largest private carrier, consistently profitable and expanding till the PW `engine troubles` started from December 2020, hitting its operations and forcing it to ground in May 2023.

Joint offer By SpiceJet and Busy Bee Airways

• Bankrupt carrier Go First, which is undergoing the corporate insolvency resolution process (CIRP), has received two bids—a joint offer by SpiceJet’s chairman and managing director Ajay Singh and little-known entity Busy Bee Airways, and the other by United Arab Emirates-based aviation company Sky One.
• Singh submitted the bid with Busy Bee Airways in his personal capacity and SpiceJet’s role, if the bid is successful, would be that of an operating partner, which would entail providing essential staff, services, and industry expertise. According to Registrar of Companies records, Busy Bee Airways is a Delhi-based company that was incorporated in 2017. The records show that the company currently has two directors, both of whom were appointed on December 25, around a week after SpiceJet expressed interest in bidding for Go First.

Impact on the aviation sector

• If Ajay Singh buys Go First with its bidding partner, it will be good news for flyers. With the grounding of Go First, SpiceJet’s financial challenges and teething troubles of Akasa Air which started last year, India’s aviation was consolidating with two top groups InterGlobe Aviation, which owns IndiGo airline, and the Tata Group which owns Air India, AirAsia India and Air India Express in addition to a 51 percent stake in Vistara.
• As smaller airlines struggle to stay afloat, nearly 90% of market share is controlled by just two entities. IndiGo has close to 62% market share while the Tata Group’s share totals to nearly 25%. Akasa Air has a 4.2% share while SpiceJet has close to 5%. Go First, before it was grounded, had a market share of more than 6%.
• IndiGo, the country’s largest airline, was the biggest beneficiary of Go First’s bankruptcy last May, an ET Intelligence Group report had pointed out in January. Between April and September 2023, the market share of IndiGo increased to 63.4% from 57.5%, Since then, however, its share fell by 160 basis points in November to 61.8%, according to the latest data published by the Directorate General of Civil Aviation (DGCA). During the period, SpiceJet’s share increased to 6.2% from 4.4% while that of Tata Group’s airlines including Air India, Air Asia and Vistara remained more or less stable at 26.5%.
• The report said intense competition is expected to make it difficult for InterGlobe Aviation, the owner of IndiGo, to gain market share in the medium term. Factors such as fund crunch, delays in delivery of planes and relatively weak balance sheets of rivals contributed to InterGlobe’s performance.
• SpiceJet, which was in dire need of funds, infused ₹2,250 crore in the middle of December through the issuance of warrants on a preferential basis. Besides, Akasa Air has resolved the issue of the shortage of pilots. In addition, the domestic aviation sector is in expansion mode and may add 150 aircraft over the next 12 months. That will be the highest capacity addition in the past four years. If Ajay Singh of SpiceJet buys Go First and creates synergies between the two airlines, it will increase competitive intensity further, which is sorely needed as an emerging duopoly in India is seen to be unfavorable to flyers in terms of fares, services and punctuality, just as a growing number of flyers need more healthy airlines.