Aviation stocks saw a sharp rally in a bearish market on Wednesday with the shares of two listed airlines - IndiGo and SpiceJet – surging up to 8% in early trade on the BSE as investors bet the grounding of non-listed rival Go First Airlines would boost profits for the rest. Shares of Jet Airways India, which plans to make a comeback to the Indian skies after being grounded for three years following a bankruptcy, were locked in the upper circuit limit.
Shares of InterGlobe Aviation, the holding company which runs IndiGo, jumped as much as 8% to ₹2,235.95 in the opening trade on reports that Go First Airlines has filed for bankruptcy. On Tuesday, IndiGo shares settled 2.43% higher at ₹2,070.40 on the BSE.
Similarly, the share price of SpiceJet soared 5.6% to ₹33.25 after opening higher at ₹31.95 against the previous closing price of ₹31.49 on the BSE.
Shares of Jet Airways, owned by Jalan-Kalrock Consortium (JKC), opened lower at ₹57.37 against the previous closing price of ₹57.71 on the BSE. The aviation stock, however, gained momentum and hit its 5% upper circuit limit of ₹60.59 on the BSE.
Wadia Group-owned Go First commanded a market share of 8.9% in the calendar year 2022 and sudden disruption in operations is likely to benefit other players and raise airfares due to supply constraints, according to domestic brokerage Prabhudas Lilladher.
As of March 2023, IndiGo commanded the largest market share at 56.8%, followed by Vistara at 8.9%, and Air India at 8.8%, as per the DGCA data. The passenger load factor (PLF) for various airlines in March 2023 shows SpiceJet recorded the highest PLF at 92.3%, followed by Vistara at 91.6%, and Go First at 90.2%.
Low-cost carrier Go First on Tuesday filed for bankruptcy with the National Company Law Tribunal (NCLT), citing trouble over non-supply of engines from Pratt & Whitney. The airline has informed the Directorate General of Civil Aviation (DCGA) that all its flights will remain cancelled on May 3-4 as the airline has been facing severe fund crunch. As of May 1, Go First grounded its 25 aircraft, or around 50% of its Airbus A320neo aircraft fleet, due to failing engines supplied by Pratt & Whitney’s International Aero Engines.
Jinesh Joshi, research analyst, Prabhudas Lilladher, said the airline was already on cash & carry mode (paying OMCs on daily basis for fuel) and has now filed for voluntary insolvency resolution. “Over the last 15 months, promoters had invested $366 million into the company but it was insufficient to cover up expenses and the airline was planning to raise money in recent weeks which apparently seems to have failed,” said Joshi.
In a statement issued on May 2, Go First said the grounding of close to 50% of its A320neo fleet due to the ‘serial failure’ of Pratt & Whitney engines has set the airline back by ₹10,800 crore in lost revenues and additional expenses.
The airline said it was forced to apply to the NCLT after Pratt & Whitney, the engine supplier for Go First’s Airbus A320neo aircraft fleet, refused to comply with an award issued by an emergency arbitrator appointed in accordance with the 2016 Arbitration Rules of the Singapore International Arbitration Centre (SIAC). That order directed Pratt & Whitney to release and dispatch without delay at least 10 serviceable spare leased engines to Go First by April 27, 2023 and a further 10 spare leased engines per month until December 2023.
Go First said it took this step despite the infusion of ₹3,200 crore by the promoters into the airline in the last three years, ₹2,400 crore of which were injected in the last 24 months, and ₹290 crore in April 2023. The total promoter investment in the airline since its inception stands at around ₹6,500 crore.