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Go First Grounded – Downfall of Go First Airlines

Updated: Jul 27, 2023



Go First Airlines, also known as Go Air, is a low-cost airline based in Mumbai, India. The airline was founded in 2005 by Jehangir Wadia, the son of Indian industrialist Nusli Wadia, and began operations in November of that year.


Go Air has implemented several initiatives to improve the customer experience, such as online check-in and a frequent flyer program called Go Club.


Despite being a low-cost carrier, Go Air has received several accolades for its service, including the Best Domestic Low-Cost Carrier award at the 2017 and 2019 Wings India Awards. The airline has also been Recognised for its commitment to sustainability, with initiatives such as reducing plastic usage on flights and promoting eco-friendly practices among its staff..


In recent years, Go Air has faced some financial challenges due to rising fuel costs and intense competition in the Indian aviation market. In 2020, the airline rebranded as Go First and announced plans to expand its fleet and focus on international operations in the Middle East and Southeast Asia.

As per the recent news on BBC.com- Go First cancelled all its flight Operations & has grounded all its fleet till May 9th, 2023 & has assured to refund full to all its passengers.

Go First has stated that it suffered a significant setback of 10,800 crore rupees as 30-50% of its fleet has been grounded since 2020 due to persistent technical issues with the Pratt & Whitney engines. The airline has filed an arbitration case against the engine manufacturer seeking compensation of 8,000 crore rupees. The arbitration award found that the failed engines were largely responsible for Go First's financial difficulties and ordered Pratt & Whitney to supply 10 engines by April 27th. However, the engine maker failed to comply with the order and there was no clarity on future deliveries. This led to the airline foreseeing a sharp reduction in fleet and unviable operations, which ultimately led to its bankruptcy filing.






Let’s understand what went wrong in Go first Airlines.


Technical Issues & Flight Delays

In recent years, Go First Airlines faced several technical issues with its aircraft, leading to many flight cancellations and delays.


Go First has accused Pratt & Whitney, a US engine manufacturer, of being responsible for the grounding of many of its planes. The airline claims that this is due to a rising number of engine failures, which has caused significant financial difficulties for the company.


Go First has reported that it had to ground approximately 50% of its fleet of Airbus A320 neo planes, which amounts to 25 aircraft. This resulted in a loss of revenue and expenses worth around 108 billion rupees ($1.3 billion; £1 billion). According to aviation analytics company Curriculum, Go First had over 1.1 million seats scheduled for 6,225 flights in May.


Intense Competition

The Indian aviation industry is highly competitive, with many low-cost carriers and full-service airlines operating in the market. Go First Airlines faced tough competition from other low-cost carriers like IndiGo, SpiceJet, and AirAsia India. These airlines offered similar services at competitive prices, making it difficult for Go First to maintain its market share.


High Operational Cost

The cost of operating an airline is quite high, and Go First was no exception. The airline faced several challenges in maintaining its operational costs, including rising fuel prices, maintenance costs, and airport charges. These costs significantly impacted the airline's profitability, and it struggled to keep up with its competitors.

Poor Financial Management

Go First Airlines faced several financial challenges due to poor financial management. The airline had accumulated huge debts, and its cash reserves were insufficient to cover its operational expenses. The airline also failed to secure additional funding from investors, which led to a severe cash crunch.

Rising Fuel Cost

Like many airlines, Go First has been affected by the volatility of global oil prices, which can impact the cost of aviation fuel. This has resulted in higher operating costs for the airline and reduced profit margins.

Regulatory challenges

The Indian aviation industry is heavily regulated, with several restrictions on foreign investment and airport infrastructure. This has created challenges for airlines like Go First, which need to navigate complex regulations and infrastructure.

Cashflow Issues

Go First has also faced cash flow issues in the past, with some reports suggesting that the airline has struggled to pay its bills and salaries on time. This can create a challenging environment for the airline's operations and its relationships with suppliers and employees.

Impact of Go First’s downfall on the Indian Aviation Industry


Go First Airlines' downfall significantly impacted the Indian aviation industry. The airline's closure led to a decrease in competition, which ultimately resulted in higher fares for passengers. The airline's employees also suffered, with over 2,000 employees losing their jobs.

Additionally, Go First's downfall had a ripple effect on the aviation supply chain, impacting several businesses that depended on the airline's operations, such as airports, ground handlers, and suppliers.

At a time when there was an increasing demand for pilots and airlines were under pressure from pilot unions for salaries and minimum flying hour guarantees, the bankruptcy filing of an airline could lead to a sudden availability of employees across all levels. This would include pilots, crew members, planning and revenue management professionals, and engineering resources, which have been scarce in the Indian aviation industry as airlines such as IndiGo and the Tata group airlines have been expanding.


Conclusion


Go First Airlines' downfall is a cautionary tale for businesses operating in the Indian aviation industry. The airline's challenges were a result of intense competition, high operational costs, poor financial management, and technical issues.

Go First, which filed for bankruptcy on Tuesday, owes Rs 6,521 crore to financial creditors including Indian banks like Bank of Baroda and IDBI Bank, as per the bankruptcy filing. Additionally, the filing also lists the Central Bank of India and Deutsche Bank as among the airline's financial creditors.

In early trade on Wednesday, the shares of the Central Bank of India experienced a sharp decline of more than 5%. Similarly, Bank of Baroda, IDBI Bank, and Axis Bank saw their shares decrease by 2.5%, 1.1%, and 1.9%, respectively.

That’s why it’s always advised that we should not be exposed to only one sector or fund. Thus Ambrela.Money is here to provide the Muti Sector Mutual fund to provide diversified & secured financial growth in your portfolio.

Also, let us observe how ‘Go First’ survives in this operational crisis & plans to recover from it.



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