What A Struggling SpiceJet Gains From Showing Interest In Grounded Go First

Indian aviation is littered with dead airlines, big and small, which have come to the market and have been unable to survive. Kingfisher, MDLR Airlines, Jet Airways, East-West Airlines, Damania Airways, NEPC Airlines. The list is endless. In this context, SpiceJet, which took to the skies as ModiLuft, is the cat with nine lives, for it has managed to stay afloat through many iterations.

The airline has been in a deep financial crisis since the pandemic, causing it to cut back severely on the induction of new aircraft, not pay their lessors and other creditors in time, and also hold back salaries and statutory dues for their employees. The airline has been busy fighting court cases from all quarters over unpaid dues over the past few years, including one with erstwhile promotors (the Marans). Not just that, the airline has frequently dropped the ball on delivering their financial results on time.

In light of this, it was a welcome decision when SpiceJet indicated that it is moving forward to raise fresh capital to the tune of Rs 2,241 crore in two tranches. SpiceJet intends to use the proceeds to pay statutory taxes such as TDS and GST, pay creditors, acquire new aircraft and so on, as per its annual general meeting notice.

However, the amount is insufficient to bring the airline’s net worth into positive territory, and it will take up to 12 months to be realised. The auditors have repeatedly expressed uncertainty about SpiceJet's ability to operate as a going concern. 

Given all these challenges, it was surprising to see SpiceJet express interest in taking over grounded carrier Go First, which has been under a corporate resolution professional since the airline filed for voluntary insolvency in May 2023.

On Dec. 19, SpiceJet filed a disclosure with the Bombay Stock Exchange, confirming the airline’s interest in Go First. The airline has reached out to Go First’s resolution professional and wants to conduct due diligence on the airline. After which, it “wishes to submit an offer to create a strong and viable airline in a possible combination with SpiceJet". All this after the due date to express interest had passed.

What could an airline, which struggles regularly to keep itself afloat, have to offer to Go First? It might be the other way around, where Go First might have something to offer to SpiceJet, even though, at the moment, Go First has a tonne of liabilities, lessors who want to take away their grounded planes and no CEO.

In any possible amalgamation scenario, airlines included, due diligence on the target is a key stage to know what the acquirer is walking into. But this is also an easy way to get access to competitor data. SpiceJet cannot sell this data, and tight non-disclosure agreements would bind it, but nothing stops it from using it internally. 

The amount of information available will be humungous, ranging from route development data to contracts for engines, aircraft, etc. This information can be used internally for negotiations with suppliers, developing new routes, etc. SpiceJet can always say no intention to proceed with a transaction after it conducts the due diligence.

If one assumes there is more to this bid than the possibility of gathering data, the airlines differ from chalk and cheese. One is a Boeing operator, and the other is Airbus. However, it should not keep SpiceJet from moving forward with the transaction, given that in the past, they have brought on board all sorts of aircraft, such as those earlier used by Jet Airways, put a decal on them, and put them into service. 

The filing with the BSE states SpiceJet’s impressions of a “possible combination with SpiceJet”, indicating if it all adds up, there could be a transaction on the cards. Would it be SpiceJet acquiring Go First or reverse merging itself into SpiceJet? These are the two options.

With the ongoing CIRP process, Go First creditors will be ready to take a significant haircut on their outstanding dues, which might make it an opportunity to clean up the books for the carrier and give it a fresh start. Additionally, if the airline ever gets any compensation from the engine maker for the significant groundings, it will be all accrued to Go First, a payday for the winning bidder. 

One thing is for sure: this transaction would involve a lot of financial engineering if it goes through. 

Ultimately, no airline has managed to come out of the insolvency proceedings in India so far (Jet Airways and Go First are the two), and the expression of interest from SpiceJet came after the deadline had passed. So, if this will be a request granted (along with the other EoIs of Safrik Investments and Sky One Sharjah), it is up to the resolution professional. But in the best interest of the airline's creditors, it makes sense to give all three of them a shot at the data room anyway.

Ajay Awtaney writes about aviation and passenger experience at LiveFromALounge.com and Tweets at @LiveFromALounge.

The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.