The bankruptcy filing of Go First, the budget airline facing financial difficulties, led to a notable decrease in the stock prices of prominent lenders such as Bank of Baroda, Axis Bank, and IDBI Bank on Dalal Street.

According to industry experts, the recovery amount for these lenders may not exceed 25-30% of the total debt owed to them by the Wadia Group-owned company. The list of financial creditors included in the filing comprises Bank of Baroda Ltd, Central Bank of India Ltd, IDBI Bank Ltd, Axis Bank Ltd, and Deutsche Bank.

Go First, the budget airline that filed for bankruptcy on Tuesday has disclosed that it owes Rs 6,521 crore ($798 million) to financial creditors in its bankruptcy filing; however, according to the filing, Go First Air had not defaulted on any of these dues, as of April 30.

According to Mahantesh Sabarad, an independent market expert, the bankruptcy filing will result in a significant financial loss for creditors. He expressed a pessimistic view regarding the recovery of the owed funds, stating that it may not exceed 25-30%. Consequently, the banks’ exposure will remain uncovered for an extended period.

At the same time, he also opines that a potential revival of Go First may not necessarily lead to the airline’s recovery. Therefore, the situation is expected to remain challenging unless a potential buyer acquires the company’s loans.

Go First’s Exposure

As per the bankruptcy filing, the Central Bank of India and Bank of Baroda have an exposure of Rs 1,300 crore each under a consortium loan. On the other hand, IDBI Bank has a smaller exposure of Rs 50 crore.

An official from the Central Bank of India has disclosed that the bank’s total exposure to the airline is Rs 2,000 crore. As per the filing, Go First has a letter of sanction of credit from Axis Bank, but it is unclear whether the credit has been availed.

The Impact

As of 9:35 a.m. IST, Central Bank of India’s shares have fallen by 44.14%, whereas Bank of Baroda’s shares have decreased by 2.4%, IDBI Bank’s by 1.4%, and Axis Bank’s by 0.5%. Meanwhile, the benchmark BSE Sensex has gone down by 0.4%.

Go First has also borrowed Rs 1,292 crore under the government’s emergency credit scheme, which was introduced during the Covid crisis. As part of this scheme, the government guarantees loans given out by banks to the company.

The airline’s total liabilities to all creditors stand at Rs 11,463 crore, including dues to banks, financial institutions, vendors, and aircraft lessors, as shown in the filing.

According to the filing, at present, the assets of the company are not adequate to meet its liabilities. As per reports, the airline’s lenders are expected to convene on Wednesday to discuss the future course of action in light of the bankruptcy filing.

Go First’s Loss SpiceJet’s Gain

Meanwhile, Indian budget carrier SpiceJet is planning to revive 25 grounded aircraft by mobilising Rs 400 crore credit taken from the government in light of the void left by Go First’s bankruptcy filing on Tuesday.

SpiceJet plans to draw funds from the government’s Emergency Credit Line Guarantee Scheme (ECLGS) and improve cash flow to revive 25 grounded aircraft. The airline has already secured approximately Rs 400 crores towards this effort. 

According to Ajay Singh, Chairman and MD of SpiceJet, the airline is meticulously working towards the return to service of its grounded fleet back in the air soon, and the bulk of the ECLGS funding acquired by the airline would be earmarked for the same, which will help capitalise and make the most of the upcoming peak travel season.

Spice Jets Shares Gain

Shares of SpiceJet were trading up 4.2%, with a day’s high of 33.25, following the news of their plans to revive 25 grounded aircraft. The airline had previously received approval from the Civil Aviation Ministry for a ‘scheme of reconstruction and revival’ in January 2015, which allowed for the takeover of ownership, management, and control by Ajay Singh. 

The company plans to utilize funds from the government’s Emergency Credit Line Guarantee Scheme and better cash accruals to get their grounded fleet back in the air, with a focus on the upcoming peak travel season.

In conclusion, the bankruptcy filing of Indian budget airline, Go First has sent shockwaves through the country’s aviation industry and its financial creditors, including the Central Bank of India, Bank of Baroda, and IDBI Bank, and have seen a significant decline in their stock prices. 

The airline owes its financial creditors $798 million, and its total liabilities to all creditors stand at $1.55 billion.

While SpiceJet has announced plans to revive 25 grounded aircraft with funds drawn from the government’s Emergency Credit Line Guarantee Scheme, the bankruptcy of Go First highlights the fragile state of India’s aviation industry, which has been hit badly by the COVID-19 pandemic and still seems to be floundering in the aftermath.