The newly refashioned Mumbai-headquartered ultra-low-cost (ULC) airline Go First’s reputation precedes itself. Industry folklore is that CEOs in Go are always ready to go—at least nine people have been brought to steady things but all left on less than happy terms.
Now, the carrier is about to set out on a new and unique precedent. In most family-run businesses in India and globally, the next generation replaces the older one and the baton is passed from father to son or daughter. In Go First, the reverse is about to happen.
On Monday, 25 October 2021, Nusli Wadia—the 77-year-old patriarch and chairman of the Wadia group—is all set to take charge of affairs at the beleaguered carrier, according to sources. This is after one son (Jehangir Wadia) was unceremoniously offloaded and the other (Ness Wadia) has not been representing Go Air in any industry meetings since September. Nusli Wadia finds himself in charge of a rocky boat in a stressed aviation scenario. Go First did not respond to at least three questionnaires sent at different points for the story. Emailed queries sent to the founders and senior management on this and other issues failed to elicit any response.
How did matters reach such a pass? Although the reins were taken away from Jeh Wadia—the founder and younger son in March—the airline’s running and management has been rocky from the beginning. Former top management sources say Nusli Wadia never let the airline run by Jeh independently and all too often he pulled up his son—even publicly in front of CEOs and other senior mismanagement over his handling—which didn’t go down well with the latter. Essentially, the airline was torn between three pilots at any point—Wadia Sr, Wadia Jr and the then CEO.
In March 2021, after a year of battering due to the pandemic, things came to a head. When flights resumed in May 2021, Go Air (recently rebranded Go First) adopting a cautious approach and was slower than others to take to the skies. This did no severe harm in the larger scheme of things. It introduced graded pay cuts for management staff that were working and not on leave without pay—starting with 50% for the CEO down to 5%. During April- June 2020, approximately 3,800 employees were put on furlough.
What affected the airline more was that Jeh himself began to tire of the endless stress of managing affairs and had no second in command, to whom he could leave everything. Kaushik Khona—who had a short stint with the carrier in 2009—was brought back in August 2020, but was more of a compromise than a choice as far as the founders were concerned.
Go was also running on empty finances. The airline’s losses mounted sharply, but airline industry sources expressed surprise that it made a loss even in the period post Jet’s demise and pre-pandemic—a time when one would expect them to turn profitable. While losses in FY2018 hit ₹31.2 crore, in FY2019 it rose to ₹386 crore and skyrocketed to ₹1270 crore in FY2020.
Go, is also in default of lease payments and is working on deferral with lessors. However, in the case of four lessors, it has received notices on 24 aircraft that seek payment of $35.75 million (around ₹260 crore), which the company says it may not be able to pay by the stipulated deadlines.
Faced with possible closure, Go decided to attempt an IPO—something that had been discussed for years but never managed to pull off. In May 2020, it took the aviation sector by complete surprise, by filing papers with India’s markets regulator to raise money through the stock market and filed to raise ₹3600 crore ($490 million). As a senior ministry of civil aviation official said, ”This would make Go Air go down in history as perhaps the only airline globally to try and raise money from the market when the aviation sector is passing through its worst phase in history”.
It was this decision to raise money from the markets that convinced Nusli Wadia that it was time to confront his younger son over his handling of the airline. The confrontation resulted in Jeh stepping down not only from Go Air but from other group companies' boards. He was quickly replaced by brother Ness as the face of the carrier. According to sources, the rift between Nusli and Jeh over control of Go Air, on the airline’s brand ownership and other matters, sharpened with the firing of Nasli Lawyer, head of administration for the company and a childhood friend of Jeh’s. According to documents submitted to SEBI, Jeh quit the Go board from December 31, 2020, and brother Ness was reappointed from November 28, 2020, although changes became public earlier this year.
Yet, the move to raise money through an IPO failed. Industry observers feel that too much of net proceeds from the issue were to finance “prepayment or scheduled repayment of all or a portion of outstandings as availed by the company” to the tune of ₹2,015 crore. ₹279 crore was sought towards replacing letters of credit that are issued to certain aircraft lessors towards securing lease rental payments and future maintenance of aircraft with cash credits. Another ₹254 crore was proposed to go towards repayment of dues to Indian Oil, in part or full, for fuel supplied. In other words, ₹2,548 crore of the total issue of ₹3,600 crore is towards paying past bills. “Who wants to invest in a company to help settle its past bills and dues?” asks a former CEO of the airline. He says companies typically seek funds for future growth and expansion, but here the stated objective was to settle past dues.
Further, the draft red herring documents do not list clearly how much is owed to operating creditors. Both SpiceJet and Go have been keeping afloat since the pandemic by deferring payments to creditors and vendors. The airline’s net worth is a negative ₹1,916 crore. Current liabilities exceed current assets by ₹4,362 crore with auditors raising concerns about calling it a going concern. It has a total debt of ₹8,160 crore as of April 19, 2021, is based on the documents. This could rise further in coming months. The document reveals the airline changed auditors’ multiple times. In FY2018 the auditor was Kalyaniwala and Mistry; in FY2019 it was Bansi. S Mehta and Co; in FY2020 it was Walker Chandiok and Co. For the nine months ended December 31, 2020, it was MSKA and associates.
Even the airline’s rebranding as ultra-low-cost carrier Go First, is viewed with scepticism. A former CEO of the airline says he fails to understand “you can’t become an ultra-low-cost carrier simply by declaring yourself one”. The claim runs contrary to what it has claimed in the DRHP based on SAP data that it quotes. As per this, its cost per available seat kilometre (CASK) for FY2020 was ₹4.66, while for SpiceJet and IndiGo it was ₹4.51 and ₹3.89 respectively.
Industry sources claim the rebranding is contrary to what ultra-low-cost airlines stand for. “The ultra-low-cost airline concept is based on functionality. Getting people safely from one place to another at the lowest price”, explains a top management source at IndiGo. He says this flies in the face of Go Air’s latest campaign: You Come First. “In ultra-low-cost model, passengers do not come first or expect anything other than a safe and un-pampered passage”, he argues. Airlines globally are set up with a cost structure in mind and cannot be changed overnight. The ultra-low-cost model allows the carrier to charge for everything and not provide passengers with any special services. In the U.S., airlines like Spirit charge for everything including water or carrying a cabin bag. “DGCA rules in India do not permit many practices that American ultra-low-cost airlines resort to”, says the CEO of a rival company. Rebranding without changing the cost structure fundamentally is “meaningless”, he adds, saying that the ability of any LCC in India to remodel itself into an ultra-low-cost airline is limited by DGCA and MOCA rules.
If Go’s rebranding (it was renamed Go First) was half-hearted, so was its attempt to present a stronger management before investors. Ness Wadia was inducted and pulled in more closely. For Jeh, being replaced by his brother, with who he doesn’t see eye to eye, was added insult to injury.
Ben Baldanza, the former CEO of Spirit was roped in but more in name than anything else. “Baldanza has been largely in an advisory role and has been trying to help raise funds but from a distance”, says a close associate of the family. He is, according to insiders, in the enviable position of no accountability to earn a fat amount for his services. Emailed queries sent to senior management of the airline failed to elicit any response.
From April to early September 2021, Ness represented Go First in the Ministry of Civil Aviation (MOCA) meetings and industry representations. He was also actively in touch with both rival CEOs and senior management within the carrier. But, the charm and excitement of the new responsibility appeared to wear off from September and Ness went missing. Sources close to him say he got tired of trying to steady a fundamentally flawed and unsteady boat, and it was never his life’s ambition to run an airline anyway.
Unfortunately for Nusli, all his moves to steady the airline have so far failed to bear fruit. Neither son is involved fully at present and the airline has failed to bring in external funds to keep operations going. Meanwhile, operations are run by its CEO Khona and a few others. But none are trusted lieutenants as far as Nusli Wadia is concerned. From the coming week, sources say, he will base himself more in Mumbai to take a firmer hold of Go First’s operations. He appears unconvinced either of the viability of the business or either of his sons' abilities to turn the airline around. He has so far refrained from bringing in urgently needed funds from personal sources as it may amount to “putting good money after bad”.
To add to his woes, he is now faced with the unenviable prospect of running the daily operations and being involved in the nitty-gritty when there is plenty of bad blood between his sons, while age is not on his side. It is both a sad and telling story.
(Anjuli Bhargava is a senior financial journalist and a regular contributor to Fortune India.)
GO AIRLINES REBUTTAL
Below is Wadia group's rebuttal to Fortune India’s article '' Why Nusli Wadia has to take charge of Go First at 77? ".
This is to bring to your notice that the article “Why Nusli Wadia has to take charge of Go First at 77?” authored by Anjuli Bhargava (“author”) and published on 21st October 2021, is misleading, erroneous and factually incorrect. The claim that attempts were made to reach out to us for our response to said article before its publication, is also incorrect. Neither the author of the subject article, nor any person from Fortune India, contacted us / any of our representatives, in relation to said article prior to its publication.
The author has failed to understand the Company or taken account of the perspective of its management or adequate inputs/ insights from Go airlines (India) Ltd. (“company”), or the Wadia Group, and its management. The author has relied on speculation, gossip, hearsay and rumors, and while doing so violated basic principles and tenets of ethical journalism. She has also, relied upon documents selectively, failing to provide the reader their proper context or meaning.
Contrary to the contents of the article, the Company is a professional enterprise and has been able to retain senior officers/ CXOs for long periods of time. As an example, Mr. Giorgio de Roni was CEO from May 2011 to March 2015; i.e., for 4 years. Likewise, the current CEO, Mr. Kaushik Khona served in that position for over 2 years during his first stint and has been back at the helm since August 2020. In fact, almost all senior management teams heading different functions i.e., engineering, safety operations, IOCC, IT, Administration and various other functions, have been with the Company since last more than 8 to 10 years.
The Group and the Company have always instilled stability in the Company's business, and consistency and continuity remain our hallmark.
Mr. Nusli Wadia has been the Non-executive Chairman of the Company since 2005. From the onset of the Covid-19 pandemic, he has brought in almost Rs.2,000 crore of his own money into the Company's business. This is over and above personal assets worth over Rs.3,000 crore provided as security since 2010 for the Company to raise money, as and when required.
The Company is not undergoing any generational change in management. Its professional management and team of key management personnel handled its business admirably during the difficult pandemic phase and continue to do so under the guidance of the Board of Directors. Board members from the family play the role of mentors and guide for the executive team, ensuring the company maintains the Group's and family's vision for its role in the industry.
The Company has been delivering well on key operational parameters and the same is being monitored by the Board of Directors.
The Company has posted several industry leading milestones and achievements over its illustrious history, including those clearly mentioned in the Offer Document, which is in the public domain. Latest data from India's Directorate General of Civil Aviation (DGCA) shows that the airline has been showing positive performance indicators after “Mission Begin Again", post the second wave of the deadly and financially devastating COVID-19 pandemic.
As for Mr. Ben Baldanza, he is our Vice- Chairman and a member of our Board. He has been associated with us since 2017. He is an airline veteran with significant experience in low-cost and full service airlines. Prior to joining our Company, he was the President, Chief Executive Officer and Director (principal executive officer) of Spirit Airlines, Inc. He was the first to implement the ULCC model in the United States. He led Spirit Airlines to become the most profitable airline in the United States for 8 consecutive years. He also led Spirit Airlines to its listing on the United States Stock Exchange. Presently, he is on the board of directors of JetBlue Airways and Six Flags Entertainment Corporation.
As for our CEO, Mr. Kaushik Khona, his leadership of the Company has always been indomitable. In his first stint as CEO, our Airline concluded its first order of 72 Airbus NEO aircraft. Moreover, under his stewardship, the Airline not only has shown steady growth, but has earned an EBIDTAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) per aircraft per month, higher than its competitors. The Company's historical performance on key parameters is given in its publicly available Draft Red Herring Prospectus (“DRHP") filed with the regulator and available in public domain.
As for Mr. Ness Wadia, he remains our non-executive Board member and has attended all crucial meetings where he / promoters have been required. Since September 2021, he has been travelling. It is but natural, in any case, that it has been our CEO, Mr. Khona, who has been representing the Company in line with requirements for any meetings called for by Industry Association(s) or the Ministry.
Between 2010 to 2019 the Airline has shown healthy growth. This can be gleaned even just from the DRHP. Even for the year 2019-20, it made operating profits. The Airline is not in default of any lease payments. As of the date of the said article, it had successfully concluded payment plans with all its lessors.
The IPO process continues and the launch is expected soon. All relevant disclosures have been made in the Offer Documents including the Objects of the IPO/ Public Issue. The DRHP and other Offer Documents comply with every mandate of applicable law. The matters pertaining to the appointment and continuity of the auditors has also been clarified and communicated through the Offer Documents as well as in response to queries. Kalyaniwalla & Mistry, could not continue as auditors of the Company after 2017-18, as per the applicable law and ICAI guidelines. Bansi S. Mehta & Co. were replaced with Walker Chandiok & Co. (associates of Grant Thornton) on the advice of merchant bankers that a company planning an IPO should preferably have, as auditor, a firm among the "Big Four" or “Big Six". Further, the replacement of Walker Chandiok & Co. with MSKA & Associates (part of BDO Group) was necessitated since the former had, in the interregnum, accepted appointment as auditor of SpiceJet.
Our strategy for our airline as an ultra-low-cost carrier is being executed in real time on the lines of Spirit Airlines in the United States and Ryan Air in the United Kingdom and the Europe.
The Company's Management is confident of taking its IPO to its logical conclusion with advice from investment bankers and other advisors.
The family, too, is together. Mr. Jeh Wadia, of his volition, for personal and family reasons, decided to relocate to the UK and did not seek reappointment on the Company's Board of Director effective 31st December 2020.
The DRHP also clearly mentions the competitive strengths, track record and achievements of the Company, including: simple, fuel-efficient and next generation fleet; strong focus on operational efficiency and reliability; established position in slot-constrained airports, with best in class efficiency; selling experiences for the young Indian leisure and MSME travelers; demonstrated track record of growth across key performance indicators; and highly experienced Board and management team compliant with corporate governance requirements, and backed by the Wadia Group.
For Go Airlines (India) Ltd.,
Chief Executive Officer