In Race to Acquire Bankrupt Airline: SpiceJet and Two Foreign Companies Vie for Bid

SpiceJet, Sky One based in Sharjah, and Africa-focused Safrik Investments have purportedly expressed interest in acquiring the insolvent carrier Go First, as indicated in a CNBC-TV18 report. These entities have reportedly urged the Resolution Professional (RP) managing Go First’s Corporate Insolvency Resolution Process (CIRP) to initiate due diligence procedures on the grounded airline.

According to banking sources mentioned in the report, the request was made subsequent to the proposal submission deadline’s expiration, and lenders were contemplating the potential liquidation of the airline. Go First halted its operations on May 3 due to financial challenges, primarily linked to Pratt & Whitney engine issues, and is presently undergoing an insolvency resolution procedure.

News reports indicate that Go First’s outstanding debts to banks and financial institutions amount to approximately Rs. 6,000 crore. In its application to the NCLT, the airline acknowledged defaulting on payments of Rs. 2,600 crore to aircraft lessors and Rs. 1,200 crore to vendors. The company attributed its insolvency filing to the grounding of multiple aircraft due to faulty engines supplied by US-based aerospace manufacturer Pratt and Whitney.

SpiceJet Expresses Interest in Go First

On Dec. 19, SpiceJet filed a disclosure with the Bombay Stock Exchange, confirming the airline’s interest in Go First. The airline disclosed plans to raise approximately $270 million from various investors. The company’s board has approved and initiated the process of securing fresh capital to bolster its financial position and provide resources for investment in growth initiatives, as mentioned in the filing.

Furthermore, SpiceJet has reached out to Go First’s resolution professional and wants to conduct due diligence on the airline. After which, it “wishes to submit an offer to create a strong and viable airline in a possible combination with SpiceJet”. All this after the due date to express interest had passed.

SpiceJet facing its own troubles

Amidst SpiceJet grappling with challenges, including grounding nearly half its fleet and difficulties encompassing On-Time Performance, slot utilization, salary disbursement, and meeting government obligations, its expression of interest in an airline that has been grounded since May, devoid of aircraft in its possession, and embroiled in maintenance disputes with lessors is notably eyebrow-raising.

Why the interest in a grounded airline?

Despite its current burden of substantial liabilities, lessors seeking to reclaim grounded planes, and a CEO vacancy, Go First is garnering enough interest, curiously. In any consolidation scenario, especially in the aviation industry, conducting thorough due diligence on the target entity remains pivotal to understanding the acquirer’s prospective venture.

However, this process also serves as a gateway to accessing competitor data. While SpiceJet cannot market this data and is bound by stringent non-disclosure agreements, it retains the liberty to utilize it internally.

The volume of available information will be extensive, encompassing route development details and contracts concerning engines, aircraft, and more. This data holds potential for internal use, aiding negotiations with suppliers, facilitating the development of new routes, among other purposes. Following the due diligence process, SpiceJet retains the option to decline a transaction, asserting no intention to proceed further.

Jindal Power has also indicated interest

Previously, Jindal Power was recognized as a potential buyer for the airline, but the deal did not materialize. Additionally, reports suggest that Sharjah-based aviation company Sky One and Africa-focused Safrik Investments have expressed interest in acquiring Go First.

Might a reverse merger offer a solution?

For unlisted entities like Go First, a resolution may entail substantial concessions for lessors. As per data presented in the Rajya Sabha, Go First bears a long-term debt of Rs 16,249,203,844, equivalent to Rs 1,624 crore. Banks might consider a substantial reduction in this amount to salvage some recovery.

Could this pave the way for a potential merger with the now streamlined Go First, rebranding it as SpiceJet? A precedent for such a move exists in Kingfisher Airlines, which executed a reverse merger with Air Deccan, renaming it Kingfisher Airlines to fulfill the prerequisite of an older Airline Operating Permit (AOP) completing five years in domestic skies before venturing into international flights— one of Vijay Mallya’s strategies upon acquiring Air Deccan.

If it happens, this could turn out to be the end of all woes for SpiceJet as it allows itself to be bigger at a fraction of the cost amongst other things. With the government focusing on the Insolvency and Bankruptcy Code and the revival of sick industries, this could be a golden way out to create a win-win situation.