There is a reason why GoAir is in a hurry to go public

NEW DELHI: Domestic carrier GoAir’s move to go public at a time when back-to-back Covid curbs have paralyzed the aviation and travel industries is being seen as a desperate attempt to make ends meet and stay afloat.

Go Airlines’ draft red herring prospectus (DRHP) provides a glimpse of not only its own affairs, but also into the plight of Indian airline companies, which have been recording losses for over a year now thanks to sporadic Covid-induced lockdowns and restrictions.

The GoAir parent company seeks to raise Rs 3,600 crore from the primary market, out of which it proposes to use Rs 254.93 crore to clear outstanding dues to oil marketing companies against fuel supplies, the DRHP says. As of April 19, 2021, the airline owed Rs 257.21 crore to IndianOil.

Fuel cost is a day-to-day expense of an airline. That the company decided to sell shares to primary investors to clear such an expense paints a grim picture of its financials. It also shows how the pandemic is drying up cash reserves of aviation firms.

Aircraft fuel is a major cost component in the airline business. The cost of GoAir’s aircraft fuel has fluctuated significantly in recent years, accounting for 33.3 per cent of total expenses in FY18, 33.1 per cent in FY19, 27.3 per cent in FY20 and 14.8 per cent in the first nine months of FY20. The company purchases almost all ATF for domestic operations from IndianOil.

“While our costs relating to fuel, manpower and various airport operating expenses were reduced during this period (fiscal 2021), we continued to incur significant fixed costs. As a result, our reduced costs did not fully offset the contraction in our revenue due to the Covid-19 pandemic,” GoAir said.

Due to the devastating second wave of pandemic, less and less people are flying now. Ministry of Civil Aviation data showed the number of average daily fliers has come down to 82,000 in the week ended May 8 from 1,26,000 in the week ended May1. Average departures declined sharply to 1,140 against 1,549 in the prior week. The number of fliers per departure declined to 72 from 81, implying a passenger load factor of about 50 per cent, analysts said.

In February, on an average 2,80,000 fliers were boarding flights daily and daily departures stood at 2,297.

These numbers show airline companies’ passenger revenues have dropped to just a fraction of what they were earning in February. That said, even February revenues were much less than the pre-Covid levels. The outlook is not positive, as much of India remains under lockdown.

"Rising Covid cases and increasing lockdown restrictions in various states will remain an overhang on air traffic," said Ansuman Deb of ICICI Securities. This will further deteriorate problems for carriers and bleed money, as expenses remain similar even when revenue has declined.

GoAir said its departures in December 2020 were at approximately 63 per cent of December 2019 levels and its growth available seat kilometers (ASKs) were at approximately 72 per cent of the pre-Covid levels.

“This has led to a sudden and significant decline in our revenues and profitability from late February 2020 and, as a result, we recorded a net loss of Rs 470.69 crore in the nine months ended December 31, 2020,” it said.

The company’s cash crunch is so acute that It continues to default on aircraft lease payments. It has now a negative net worth of Rs 1,961.50 crore while current liabilities exceed current assets by Rs 4,362.58 crore. This is after the company received funding from another company of the promoters, the Wadia group, and credit from ICICI Bank.

The management believes even when restrictions are lifted and Covid-19 is controlled, the fear caused by the virus may have a continued adverse impact on the aviation and travel industry and might further delay the industry's return to pre-pandemic levels of operations.

The situation is bad not just for GoAir. Tata Sons and Singapore Airlines have just infused Rs 465 crore in their Indian joint venture, Vistara, which is struggling to stay afloat along with the rest of the industry.

Other listed aviation companies are also in no better situation. Jet Airways is yet to resume operation under the new owners. As of now, no one has a clue as to when will the industry come out of this turbulent phase and fly high.