Go Air has filed for a ₹3,600 crore IPO at a very desperate time

• This would be the third listed airline in India after Interglobe Aviation (which operates IndiGo Airlines) and SpiceJet.
• More than a tenth of Go Air's ₹2,000-crore debt are unpaid dues to Indian Oil Corporation for jet fuel.
• The second wave of the COVID-19 pandemic has scuttled an early recovery in aviation and a rise in fuel cost, along with a weaker rupee and tepid passenger traffic, may further erode the airline's prospects in the next few months.
• Read on for some interesting revelations from the company's IPO prospectus.

Budget carrier Go Airlines, which has rebranded itself as 'Go First', has filed the prospectus for an initial public offering (IPO) worth ₹3,600 crore. The 15-year old airline owned by the Wadia Group, which also owns companies like Britannia and Bombay Dyeing, will use the money received from the share sale to repay its debt.

This would be the third listed airline in India after Interglobe Aviation (which operates IndiGo) and SpiceJet (owned by former bureaucrat-turned-businessman Ajay Singh) if the IPO goes through. Go Air had raked in a loss of ₹1,270 crore for the year ended March 2020 on a revenue of over ₹7,250 crore.

It is now focusing on ultra low cost carrier model. Of a fleet of 55 that the Wadias' airline had at the end of March 2021, 46 of them were A320 NEO aircraft. The company intends to add another 16 planes to its fleet by March 2024.

Aside from a massive debt of over ₹2,000 crore, Go First has been dealing declining market share too. More than a tenth of that is the money owed to the state-owned Indian Oil Corporation for jet fuel already bought. Just about six months ago, in November 2020, the company's auditors had expressed doubts about the then Go Air's ability to continue its business, the disclosures in the IPO prospectus showed. After that, the company got an emergency credit line from banks in February 2021.

These are a few other interesting revelations from the prospectus:
Source: Draft Red Herring Prospectus filed with the Securities and Exchange Board of India

In 2019, when it was reportedly planning an IPO, it was flying at least one in every ten air passengers in India. That share was down to 7.8% at the end of March 2020. A crisis like this makes the more resilient players stronger and that's possibly why IndiGo has increased its market share to at least one in every two passengers who took flights in each of the last three months.

The second wave of COVID-19 pandemic has scuttled an early recovery even for Go First's bigger peers. Passenger traffic was still less than half (45%) of what it was before the pandemic struck and about one in every flights were idling in April 2021, according to a report from the broking firm Centrum dated May 5.

International crude oil prices are expected to rise and that would mean the cost of jet fuel will also rise, unlike the passenger traffic. And, the impact could get worse if the rupee loses value against the dollar. "Looking at the current climate of subdued demand, a depreciating rupee (impacting 65-70% of costs including fuel), rising ATF (aviation turbine fuel) prices and daily cash burn, we continue to have a negative stance on the aviation industry," a BOBCAPS report dated April 30 said.

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