Go First Grounded: Aviation sector needs consolidation to stay healthy: Mahantesh Sabarad

Independent market expert Mahantesh Sabarad, says while the aviation industry is attractive, it has become very competitive and some of the financial aspects of running an airline are quite tough to really overcome, particularly the exchange rate, fuel costs etc, which are financially burdensome for many airlines, including the top ones. While other players can exist, unless there is a bit of consolidation, we will not see the industry players remaining healthy.

I want to understand the implications from the Go First lenders point of view. Financial creditors like IDBI Bank, Deutsche Bank, Central Bank and BOB have an exposure of over Rs 6,500 crore. This is clearly going to be a huge hit for a lot of these financial creditors.
Yes, in a way, it is going to be a huge hit for his financial creditors but also there are certain underlying assets, particularly the aircrafts on orders that they have, which can realise a certain amount of money, including termination of leases. Some of the leases that have lease outstanding can be restructured. There is a potential that they could be recovering some portion of the fund.

I do not want to sound very optimistic about the recovery and may not exceed 25-30% odd. So, the exposure of the banks will remain uncovered for quite a duration. A revival may not necessarily help the airline as it is going to be very tough unless some suitor comes in and decides to take over the loans. It is going to be very difficult.

From the standpoint of the other aviation majors – some new players that have recently come in. For example, InterGlobe Aviation (Indigo) stock is flying high in today's trading session. Is Go First’s misfortune going to be advantageous to existing players?
The Indian aviation market already has a lot of players in the market. So it is quite competitive as it is. Gone are the days of a decade ago, when we used to have counts of airlines on the fingertips, four, five airlines would be there with some of them hogging the market share. Today we have the market share fairly spread and the number of players are too large and the aviation market has started to grow once again post the Covid block.

I would reckon that while the industry is certainly attractive, it has become very competitive and some of the financial aspects of running an airline are quite tough to really overcome, particularly the exchange rate, fuel costs etc, which are financially burdensome for many airlines, including the top ones. While other players can exist, unless there is a bit of consolidation, we will not see the industry players remaining healthy.