How Will Go Airlines Insolvency Impact Indian Banks?

Jefferies said the insolvency of Go Airlines (India) Ltd., which operates ultra-low-cost airline Go First, will have limited impact on the Indian banks.

“Based on filings for April 2021 and September 2021, we understand that loans from banks were around 20-25 billion rupees, which is just around 2bps (basis points) of sector loans,” the brokerage said in an investor note dated 2 May.

Majority of liabilities (110 billion rupees) are as lease liabilities, it added.

Jefferies said among banks, Central Bank of India may have around 7 billion rupees (20-25bps), ICICI Bank about 3.5-4 billion rupees (4bps of loans; it has 1.3% of loans in buffer provisions). Deutsche Bank, IDBI Bank and external commercial borrowings were other sources, it noted.

“We see low risk for lenders,” Jefferies said.

Separately, Jefferies today said Go First, formerly known as GoAir, filed for insolvency, saying it could no longer continue to meet financial obligations, blaming US company Pratt & Whitney's (P&W) faulty engines for the grounding of 50% of its fleet, which impacted operations.

Go First is the aviation foray of India’s Wadia Group and its fleet comprises 59 aircraft, of which 54 aircraft are A320 NEO aircraft, and five are A320 CEO models, according to its website.

The airline has also canceled its scheduled flights for three days, citing “operational” reasons.

“We regret to inform that due to operational reasons, Go First flights scheduled for 3rd, 4th and 5th May 2023 have been canceled,” the airline said on its website. It added that a full refund will be issued to customers shortly.

Jefferies said Go First operated in 27 domestic destinations that cover all the metro cities as well as seven international destinations.

The airline's market share stood at 6.9% in March 2023, slipping from 8.9% in CY22 and 10.7% in CY19, it added.

The brokerage said while the revival path isn’t clear for Go First, the market disruption caused by the shutdown of operation is likely to reduce competitive intensity, and could benefit air fares, especially amid the recent strong traffic trends seen in the Indian aviation sector.

"If the exit of Go First does happen, this would be at the margin positive for sector consolidation as this would mean one less player in the market," Jefferies said.

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