Banks are staring at a loss of over Rs 5,600 crore in Go First Airlines which has filed for insolvency at the National Company Law Tribunal (NCLT).
The financial liabilities of the troubled airline, promoted by the Wadias of Bombay Dyeing, could be more than three times of the bank exposure, according to banking sources.
The total financial liabilities of the airline were at Rs 14,172 crore as of December 2020, according to the Initial Public Offering (IPO) prospectus filed by the airline. This has shot up further in the last two years.The company which proposed an IPO three years ago had postponed it at least three times due to several reasons, including the pandemic impact. Banks are cautious while increasing their exposure to the airline sector as the collapse of Kingfisher Airlines and Jet Airways has led to heavy losses for the banking sector.
The total bank loan outstanding of the aviation sector amounts to Rs 28,330 crore as of March 2023, according to RBI data.
On January 19, 2023, rating agency Acuite downgraded the company’s rating on Rs 5,600 crore bank loans from A- to BBB in the wake of its deteriorating financial position. “The rating downgrade factors the consistent losses incurred in the past three years which has also continued in the first half of FY23 leading to higher dependence on external borrowings and group support,” the rating firm said. According to the IPO prospectus, Central Bank had an exposure of Rs 424 crore and Bank of Baroda Rs 85.79 crore as of March 2020.
The group has taken two foreign currency term loans approved by the Reserve Bank of India (RBI) under the route of External Commercial Borrowings (ECB). These term loans carry an interest rate of 6 months’ USD LIBOR plus 300 bps LIBOR. The same was repayable in 24 equal instalments upon delivery of the last 24 aircraft of first order of 72 aircraft, according to the IPO prospectus. While the domestic passenger traffic volumes have started to witness a gradual recovery in FY23 after the prolonged pandemic which had a severe impact on the global aviation industry, the Indian aviation players continue to face significant headwinds due to high ATF (aviation turbine fuel) prices and limited ability to pass on the increased operating costs to the customers. The company reported a loss of Rs 1,804 crore for FY22 as against Rs 870 crore in the previous year.
The company had faced multiple incidents which led to aviation regulator DGCA to issue show cause notice to the airline.
However, Acuite said, “given the steps taken by Go First to reduce its cost per available Seat Kilometer (CASK) and to ramp up its capacity gradually in line with the market growth opportunities, the long-term business outlook for the airline continues to be healthy.”
The Wadia group has provided strong financial support to Go First whenever required since its inception in the form of Inter Corporate Deposits (ICDs) and rights issues, the rating firm said.
As on 31 March, 2022, the total ICDs from the group was Rs 315 crore and during the second wave of the Covid pandemic, the group infused equity through rights issue to the tune of Rs 550 crore.
Furthermore, after the onset of the third wave, the group infused additional equity to the tune of Rs 300.00 crore during Q4FY22.
Acuité had said Go First will continue to benefit from its established position in the aviation industry and strong financial support from the Wadia group over the medium term.