Go Airlines India Ltd. this week became the latest victim in the battle of the skies over India. It isn’t the first high-profile carrier to fail and it won’t be the last.
Buoyed by an emerging middle class hankering to fly, Indian airlines ordered billions of dollars worth of planes in the past few years, creating a cauldron of competition in what is now the world’s most populous nation. Even before the industry was slammed by the pandemic, the fight for survival was intense.
Here’s what makes India both one of the fastest-growing and most difficult markets for operators, as well as suppliers such as Airbus SE and Boeing Co.
Once the nation’s third-biggest carrier, Go sought insolvency protection, saying that Pratt & Whitney had failed to supply parts and replacement engines needed for the Airbus A320neo jets that are the backbone of its fleet, even after it was mandated by an arbitration court to do so, forcing it to ground about half its planes. The engine-maker, a unit of Raytheon Technologies Corp., has disputed the claim.
The airline was forced to delay a 36-billion-rupee ($440 million) initial share sale last year while many of its planes were still idled and is now staring at imminent creditor defaults, with liabilities of 114.6 billion rupees ($1.4 billion).
Who else has folded?
The reasons Indian airlines fold vary, but it mostly boils down to a mix of dirt-cheap fares, high taxes on fuel and cut-throat competition, all recently compounded by the disruption from Covid. A one-way ticket for a 90-minute flight from New Delhi to Mumbai on Sunday was offered for $79 on Booking.com, compared with $199 for a similar-length flight from New York to Atlanta.
In addition, the Indian rupee has fallen almost 20% against the dollar since the beginning of 2019, raising the cost of leasing planes from abroad.
Successive and largely populist governments have shied away from offering direct support to struggling airlines. Indeed, the government has sometimes even pushed carriers to cut fares further. The previous administration allowed foreign airlines to invest in local carriers, and urged states to reduce taxes.
So why do new airlines keep popping up?
India may have to cope with more than 1.3 billion passengers a year in the next 20 years, compared with fewer than than 200 million now, according to Sydney-based CAPA Centre for Aviation, which estimates that within 40 years, the Indian market will grow from the size of Las Vegas to the size of the US.
Only last year, now-deceased billionaire Rakesh Jhunjhunwala brought together a group of aviation veterans to operate the nation’s newest airline: Akasa Air.
While it’s rare for cash-strapped airlines to come back, there is precedence. SpiceJet Ltd., then owned by billionaire Kalanithi Maran, was forced to ground its entire fleet after local oil companies refused to fuel its planes on credit. Yet, under the new ownership of its original co-founder Ajay Singh, SpiceJet has managed to stay afloat by renegotiating contracts and cutting loss-making routes.
Air India’s privatization has paved the way for more consolidation. Tata Group, which already held a majority in two other local ventures — with Singapore Airlines Ltd. and Capital A Bhd.’s AirAsia — has started to combine all the brands under one roof. That’s no guarantee of survival in India. Jet Airways, which bought budget carrier Air Sahara, and Kingfisher Airlines, which took over Air Deccan, both went bankrupt.
As for Go, the court may appoint an official to oversee the airline while terms are renegotiated with lenders and lessors. The airline insists it will recover, but has canceled all flights until at least May 9. In the meantime the airline faces the risk of losing its trained employees and crew to rivals that are scrambling to fill vacancies created by the pandemic.
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