Go First Lenders Can Check Out New Offers

Go First Lenders Extend Bidding Deadline

Source and Citation: Original reporting from [CITATION]

Analysis for Layman

Go First, formerly known as GoAir, is a prominent Indian budget passenger airline that has faced financial troubles and has been grounded since May 2022. It owes a significant amount of over Rs 6,200 crore to various creditors and lenders, including Central Bank of India, Bank of Baroda, and IDBI Bank. Currently, the airline is undergoing a Corporate Insolvency Resolution Process (CIRP) as per the Insolvency and Bankruptcy Code.

The Resolution Professional (RP) responsible for overseeing the CIRP had initially set January 7, 2023, as the deadline for lenders to vote on bids received to take over Go First. However, after receiving unsolicited interest from SpiceJet and two overseas investors after the original bidding deadline, the RP has extended the voting period until the end of this week. This extension allows lenders more time to assess the new potential bids.

This extension offers a glimmer of hope for the beleaguered airline’s revival. Lenders appear inclined to reopen bidding to maximize recovery, though they remain cautious about the financial viability of potential bidders. The CIRP deadline is February 4, and a further 60-day extension is still possible within legal boundaries.

Impact on Retail Investors

The Go First bidding extension brings mixed implications for retail investors in India’s volatile aviation sector. It is essential for investors to closely monitor ongoing developments before making investment decisions.

On one hand, a successful takeover by a stronger airline like SpiceJet has the potential to revive Go First, preserving jobs and service standards while limiting wider contagion effects on the industry. However, SpiceJet itself carries a substantial debt burden of over Rs 1,500 crore, raising doubts about its ability to turn around Go First.

For conservative investors focused on aviation ancillary services, the distressed asset may present long-term value. Go First still possesses valuable airport slots, a trained workforce, and brand value. Nevertheless, near-term challenges constrain upside potential.

Cautious investors should consider avoiding aviation stocks altogether due to rising ATF prices, a weakening Rupee, and intense competition. Aggressive investors might explore measured investments in financially stable players like Indigo for potential long-term gains. Keep an eye out for attractive valuations in case of a market correction.

Impact on Industries

The bidding extension for Go First and the potential change in ownership can have repercussions across several industries:

Aviation: A takeover could reduce broader revenue losses but increase competitive intensity. Dominant players like Indigo and emerging entities like Akasa Air may face margin pressure, while jet fuel retailing and airport services remain growth sectors.

Banking/Finance: Go First’s Rs 6,200 crore NPA has already been provisioned for by lenders. A successful takeover would assist in recovery, but banks like SBI and PNB still have exposure to distressed assets of Virgin Atlantic and Kenya Airways, potentially affecting credit flow to the aviation sector.

Travel/Tourism: Hotel, hospitality, and offline travel agencies temporarily benefited from lower air ticket prices when Go First grounded its flights. Consolidation in the industry might restore pricing power to airlines, benefiting companies like MakeMyTrip and EaseMyTrip if the airline’s revival materializes.

Technology: IT companies providing passenger service systems, airline software, and loyalty programs could see gains, with Infosys and Accelya Kale receiving fresh bidding interest positively.

Long Term Benefits & Negatives

Positives:

• Revitalizes Go First, protecting jobs and valuable operational assets like airport slots and workforce.
• Prevents wider industry contagion compared to a collapse similar to that of Kingfisher Airlines.
• Opportunity to improve corporate governance, optimize aircraft fleet, and enhance brand value for sustainable growth.
• Introduces competition, keeping airfares affordable. Gradual industry consolidation may be healthier for consumers than a duopoly.

Negatives:

• Acquirer may choose to strip Go First’s resources rather than making serious revival attempts.
• Intense pricing competition may further erode already thin margins across the industry, affecting long-term viability.
• Excess aircraft capacity could lead to lower airfares, negatively impacting the profitability and expansion plans of stronger airlines.
• Failure to revive the airline may necessitate re-bidding, stretching lenders’ ability to recover loans.

Short Term Benefits & Negatives

Negatives:

• Delayed CIRP resolution can affect employee morale and create uncertainty about the airline’s future.
• Transaction complexity and concerns about financial viability may jeopardize the deal even after the bidding extension.
• Lenders may face a substantial haircut on loan recovery, with the risk of restructured NPAs in the future.

Positives:

• There is a chance of improved valuation from new bidders compared to the previous round.
• Keeping the airline afloat on an interim basis preserves brand equity, staff skills, airport slots, and other assets.

While the bidding extension may seem reasonable to maximize loan recovery, investors should temper their expectations regarding a white knight acquisition in the short term. A prudent strategy involves waiting and watching for significant developments.

Impact of Go First Lenders Extending Voting Deadline

Indian Companies that could gain:

• SpiceJet: As an existing budget airline, SpiceJet could potentially benefit from acquiring Go First’s assets, including aircraft and routes, expanding its market share and network. However, absorbing Go First’s debt and integrating operations could pose financial and operational challenges, impacting their stock price.
• Sharjah-based aviation company Sky One: Depending on their strategy and financial strength, Sky One could gain entry into the lucrative Indian aviation market through acquiring Go First. However, limited information about their plans and experience raises uncertainty about their potential success.
• Safrik Investments: Similar to Sky One, Safrik Investments could see an opportunity to expand into India, but their potential impact on Go First and the market remains unclear.
• Central Bank of India, Bank of Baroda, and IDBI: As the main secured creditors, they have control over the timeline and could potentially extract better recovery terms if a new buyer emerges or the arbitration case against Pratt & Whitney succeeds.
• Law firms involved in the arbitration case: Continued legal proceedings against Pratt & Whitney could benefit law firms involved, depending on the outcome and fees earned.

Indian Companies that could lose:

• Go First lenders (other than the main secured creditors): Extending the deadline and reopening the bidding process could delay their debt recovery, potentially impacting their financial statements and investor confidence.
• Jindal Steel and Power: If they decide not to participate in the new bidding process, they could miss out on a potential acquisition opportunity in the aviation sector.
• Indian aviation sector: Continued uncertainty surrounding Go First’s future could further dampen investor sentiment and hinder overall growth in the industry.

Global Companies:

• Pratt & Whitney: The ongoing arbitration case poses a financial risk for the engine manufacturer if they are found liable for faulty engines and responsible for damages. Their stock price could be impacted by the case’s outcome.
• Global aircraft manufacturers: Depending on the final decision on Go First’s assets, there could be opportunities for aircraft manufacturers to supply new planes to the airline under new ownership, potentially benefiting companies like Boeing and Airbus.

Overall Market Sentiment:

The news of a renewed bidding process for Go First is likely to bring mixed reactions in the market. While SpiceJet and potential new players could see their stocks rise on speculation, lenders and existing investors in Go First might face further uncertainty and delays in debt recovery. The aviation sector in general could experience cautious optimism, with the possibility of market sentiment improving if a credible buyer emerges and revitalizes Go First. However, concerns about financial viability and operational challenges will remain until a clear resolution is reached.

Please note: This analysis is based on the information provided in the news article and does not constitute financial advice. Investors should conduct their own research and consult with qualified professionals before making any investment decisions.