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.)