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Economics of India's Aviation Dream

 When the Ministry of Civil Aviation in 2016, under the leadership of Prime Minister Narendra Modi, set a target to make India the third-largest aviation market in the world by 2020, It may not have thought that five low-cost carrier airlines would go belly up, including Jet Airways, Air Costa, Air Pegasus, Air Carnival and Zoom Air. Now Go First is the latest addition to the list.

The target of the Indian government was 300 million domestic tickets and 200 million international tickets by 2022 and the development of 100 new airports, including 50 unserved and underserved airports, over the next 15 years. Though the Indian Government made strides to achieve the goals, there is still work to be done to achieve its ambitious targets and overcome the challenges faced by the industry.

Challenges Faced by Indian Aviation Industry

The aviation industry in India faces challenges such as high fuel prices, infrastructural constraints and regulatory issues. But we see operational challenges as the most significant ones.

The High-Flying Challenges

  • Diverse Aircraft Portfolios: Air India, with a fleet of 118 aircraft, has a diverse portfolio that includes Airbus, Boeing and ATR aircraft, leading to higher maintenance costs and airport-related expenses
  • Outdated Fleet: Air India also struggles with an outdated fleet, including its Boeing 747-400, which lead to higher maintenance costs, reduced operational efficiency and increased fuel consumption
  • Higher Fuel Costs: Indian airlines such as IndiGo, SpiceJet and Go First have faced challenges due to the rising fuel costs, which have impacted their operational costs and profitability
  • Labor Issues: In 2017, Air India faced labor issues due to the proposed privatization, leading to strikes by its employees and a significant impact on operational efficiency


Aviation has proven to be an alluring and cutthroat industry for wealthy entrepreneurs. Many have been drawn in by the promise of a burgeoning sector and the prestige of owning their own airline, only to learn that the skies can be an unforgiving and tumultuous place.

In recent years, several Indian airlines have faced financial difficulties, with some even going bankrupt. One of the examples is Jet Airways, which operated for over 25 years before ceasing operations in April 2019 due to severe financial distress. The airline had a debt of over Rs. 8,000 crore and faced intense competition from low-cost carriers. Another airline, Air Costa, shut down in February 2018, citing "financial issues" and a "sudden surge in crude oil prices." Air Pegasus and Air Carnival also went belly up in the same year. The main reasons for the financial troubles of these airlines include high operating costs, fierce competition and economic downturns.

Family-owned airlines are like tightly run ships, with entrepreneurs who are emotionally attached to their "babies" and fiercely resist injecting fresh equity for fear of losing control. This attachment often leads to their egos getting in the way, creating a dangerous and fatal flaw that can ultimately lead to the downfall of the entire enterprise.

So Why Do New Airlines Keep Popping Up?


The Straight answer is India’s demography. India's aviation sector is a spicy mix of opportunity and ambition, fueled by a population of over 1.3 billion, with more than half of them under 30. The nation overtook Japan as the third-biggest domestic aviation market in 2016 and more local airlines are adding overseas routes.

For Indian industrialists, owning an airline is a status symbol, with names like Kingfisher and Jet Airways becoming household names in India. Only last year, now-deceased billionaire Rakesh Jhunjhunwala brought together a group of aviation veterans to operate the nation’s newest airline: Akasa Air.

Before we delve deep into our newest member on the failed list of airlines, Go First, its problems and share our insights on the aviation industry, let's look at the economics of an airline.

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From IPO Flop to Financial Flop: The Go First Story

When septuagenarian billionaire Nusli Wadia’s son, Jehangir Nusli Wadia, also known as Jeh Wadia, entered the glitzy aviation business in 2005, he had little idea that the company Go First will end in bankruptcy.

The Failed IPO Attempts

  • In June 2018, Go First filed a draft prospectus with the Securities and Exchange Board of India (SEBI) to launch an IPO
  • In July 2018, the company received approval from SEBI to go ahead with the IPO
  • In September 2018, Go First postponed its IPO plans due to unfavorable market conditions
  • In January 2019, the company again filed a draft prospectus with SEBI to launch an IPO
  • In June 2019, Go First received approval from SEBI to go ahead with the IPO
  • In July 2019, the company postponed its IPO plans due to market conditions and regulatory issues

The Beginning of Turbulence in Air

Let’s have a look at some important events which led to Go First’s current situation

  • Go First's troubles started a few years ago due to malfunctioning Pratt & Whitney (P&W) engines powering its aircraft. The key reason for engine failures was "combustor distress"
  • Around 80% of Go First's Pratt & Whitney engines started malfunctioning before completing even 5,000 flying hours, resulting in 48% of the engines being removed for repair
  • In 2020, around 30% of Go First's fleet was grounded, but currently, half of its aircraft are not operational and this number is likely to increase in the coming weeks
  • The airline has already cancelled all its flights for the next two weeks, indicating nervousness about its operations


We analyzed the multiple years' income statements. Go First's aircraft and airport-related expenses increased from Rs. 3516 crore in 2018 to Rs. 5230 crore in 2019, then decreased to Rs. 4656 crore in 2020. However, their depreciation and amortization expenses surged from Rs. 16 crore to Rs. 1452 crore due to the Covid-19 pandemic and faulty engines/asset write-offs. Compared to IndiGo, Go First's depreciation and amortization expenses increased by around 8900%. This may be because Go First has a smaller fleet, faulty engines, a single engine supplier and P&W didn’t deliver on their maintenance commitment, making the flights remain grounded for a longer duration, while IndiGo has over 300 planes and two engine suppliers (P&W and CFM).

The above may suggest a lack of planning by management or mismanagement. When major airlines in India had diversified their fleet and engine manufacturers, Go First relied only on P&W engines creating operational bottlenecks when the engine delivery and maintenance got stuck.

The Financial Flop

Go First Airlines, previously known as GoAir, has applied for insolvency proceedings before India's National Company Law Tribunal (NCLT) on 02 May, 2023. The airline's massive financial losses were primarily due to issues with Pratt & Whitney. Go First has canceled all its flights. According to the latest news, passengers get credit notes* instead of refunds.

Note: A credit note is a document that acknowledges that a seller owes money to a buyer, typically issued when goods or services are returned or overcharged.

It will take two to six weeks for NCLT to admit it. The Go First management will try for early entry as they would not want aircraft lessors to get back the aircraft from Go First's possession. Admission to NCLT will mean the airline's board will be dissolved, and a resolution professional (RP) and a committee of creditors (CoC) will be appointed to oversee the airline's functioning and no lawsuit can be filed then, no claims will be entertained and no aircraft can be repossessed

The CEO, Kaushik Khona, has told employees that the crisis is created by Pratt & Whitney's (P&W) failure to supply the engines.

On the other hand, Pratt & Whitney blamed Go First for the engine troubles and alleged that the airline has a history of not fulfilling its financial obligations to the company.

Go First in Freefall: Insolvency Proceedings Can Leave Future Uncertain

The government's stance on the Go First airline's insolvency is clear: it will not intervene to save it. Aviation minister Jyotiraditya Scindia emphasized that the legal process will be followed instead. Therefore, the airline will have to find a way to resolve its financial troubles without government assistance.

Although the airline has received a grant of Rs. 300 crore from a consortium led by the government-owned Central Bank, this grant did not save the company from its debts. Banks, including the Central Bank, Bank of Baroda and IDBI, already have an airline exposure of around Rs. 4,000 crore.

However, there is no certainty that the insolvency proceedings will be completed within 6 months and it is expected to be multiple rounds of discussions and failed negotiations.

Who is Set to Gain From the Fall of Go First?

This bankruptcy would be an excellent opportunity for IndiGo, Tata and Singapore Airlines-backed Air India and late Rakesh Jhunjhunwala-backed Akasa Air, which have been expanding fast and would be willing to gobble Go First slots, pilots and engineers if and when they become available.

Go First's bankruptcy might benefit the likes of Rahul Bhatia’s IndiGo, which de-risked itself by extending the leases of 20 planes that were about to be sent back because of engine issues and plane groundings. In terms of slots, IndiGo has a good chance because they continue to get new planes and no one else has the capability to add planes so quickly.

Clearing the Air: Why One Model Won't Soar in India's Aviation Industry

India's aviation industry has seen multiple past failures, including Air India, Kingfisher Airline, Jet Airways and Go First. From these examples, it is clear that management has failed to plan ahead and look beyond its current operating models. Moreover, successful operators like Indigo, Vistara, AirAsia India and GoAir have unique operating models that may not fit each other or any other airline in the industry.

We studied the failures of Air India, Kingfisher Airlines, Jet Airways and Go First. We learned from these examples that somewhere, management failed to look beyond and plan ahead. Also, the operating model of successful operators like Indigo, Vistara, AirAsia India or GoAir may not fit each other or any in the Industry.

Air India had been running in losses, with an estimated debt of over Rs. 60,000 crore (approximately USD 8.2 billion) as of March 31, 2019. High fuel costs, intense competition from low-cost carriers and a bloated workforce were significant reasons for its mounting losses.

On the other hand, Kingfisher Airlines' failure was due to a combination of factors, including high operating costs, intense competition, poor management decisions and a global economic downturn. Kingfisher Airlines struggled to compete with other airlines in India, such as IndiGo and Jet Airways, which had more efficient operating models and more robust financial backing. When questioned about his decision to change the low-cost model of Air Deccan to the high-cost model of Kingfisher after investing in the former airline, Mallya responded by saying that he wanted to make Air Deccan ‘sexy’.


IndiGo has consistently been the market leader in domestic passenger traffic since 2012, with a market share of around 50%. As of March 2021, IndiGo reported a net profit of Rs. 620.1 crore for the quarter ended December 2020. On the other hand, SpiceJet has faced financial challenges in the past, including a near-collapse in 2014. However, the airline has since rebounded and regained profitability, thanks to a focus on cost-cutting measures and operational efficiency. SpiceJet reported a net profit of Rs 105.2 crore for the quarter ended December 2020.

In conclusion, India's airlines must constantly evaluate and improve their operating models to achieve sustainable growth. Factors such as cost structure, management efficiency, route network and customer experience play crucial roles in determining the success or failure of an airline. By learning from the failures of past airlines and adapting to the unique challenges and opportunities presented by the Indian market, airlines can thrive and establish themselves as leaders in the industry.

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Economics of India's Aviation Dream

Ankit Abhishek
Yatharth Chaudhary
  • January 23, 2024
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