Summary
Jindal Power, the sole bidder for the bankrupt Indian airline Go First, has decided not to submit a financial bid for the company. This decision comes after a month-long due diligence process and ahead of the November 22 deadline for bids.
The decision is likely due to the recent regulatory changes in the Insolvency and Bankruptcy Code (IBC) that allow aircraft lessors to seize aircraft if payments are not made in time. This has made it difficult for potential bidders to assess the value of the airline because of the uncertainty about the number of airplanes that would remain in its possession.
Go First’s total dues to banks and financial institutions are pegged at around ₹6,000 crore. The company filed for insolvency under Section 10 of the IBC in May 2023.
Impact on Industries
This news could have a negative impact on the following industries:
- Aviation: The failure of Go First could lead to consolidation in the Indian aviation industry. This could result in higher fares and reduced competition for consumers.
- Aircraft leasing: The new regulations in the IBC could make it more difficult for aircraft lessors to get paid. This could lead to higher financing costs for airlines and could make it more difficult for new airlines to enter the market.
Impact on Public Companies
The following public companies traded on Indian stock exchanges could be negatively impacted by this news:
- Other Indian airlines: The failure of Go First could put downward pressure on the stock prices of other Indian airlines.
- Aircraft manufacturers: The new regulations in the IBC could make it more difficult for aircraft manufacturers to sell their planes to airlines. This could lead to lower sales and profits for these companies.
Impact on Retail Investors
Retail investors should be aware of the potential risks associated with investing in companies in the aviation and aircraft leasing industries. The failure of Go First is a reminder of the risks involved in investing in these industries.
Citation
Bhalla, Mohit. “Jindal Power Drops Plan to Submit Financial Bid for Troubled Go First.” The Economic Times. 22 Nov. 2023. https://m.economictimes.com/industry/transportation/airlines-/-aviation/naveen-jindal-group-firm-jindal-power-decides-not-to-bid-for-gofirst/articleshow/105385223.cms?UTM_Source=Google_Newsstand&UTM_Campaign=RSS_Feed&UTM_Medium=Referral
Original Analysis
The failure of Go First is a blow to the Indian aviation industry. The company was once one of the fastest-growing airlines in India, but it was hit hard by the COVID-19 pandemic. The company’s financial problems were exacerbated by the new regulations in the IBC.
The failure of Go First is also a reminder of the risks associated with investing in companies in the aviation industry. The industry is highly cyclical and is subject to a number of external factors, such as fuel prices, economic conditions, and government regulations.
Despite the risks, the aviation industry is also a high-growth industry. The Indian aviation market is expected to grow at a CAGR of 7.5% over the next decade. This growth will be driven by factors such as rising incomes, increasing urbanization, and growing tourism.
Retail investors who are considering investing in companies in the aviation industry should carefully consider the risks and potential rewards involved. They should also do their own research and seek professional advice before making any investment decisions.
Additional Insights
- The failure of Go First could lead to further consolidation in the Indian aviation industry. This could lead to higher fares and reduced competition for consumers.
- The new regulations in the IBC could make it more difficult for aircraft lessors to get paid. This could lead to higher financing costs for airlines and could make it more difficult for new airlines to enter the market.
- The failure of Go First is a reminder of the importance of risk management for companies in the aviation industry. Companies need to be able to manage their finances effectively and to be prepared for unforeseen events.
Conclusion
The failure of Go First is a significant event for the Indian aviation industry. Retail investors should be aware of the potential risks associated with investing in companies in this industry.