GoAir has reportedly received a ₹800 crore ($108.6mn) loan from banks. The loan comes as the airline continues to struggle with low market share and negligible international flights. This funding is a part of the government’s recent package to help companies impacted by the pandemic with collateral-free loans.
Important boost
For GoAir, the timing of this loan is quite critical. As India potentially sees a second wave of nationwide infections emerging, the aviation industry could see another downturn, hurting its relatively strong recovery. If lockdowns were reimposed or travel restrictions added, it would quickly decimate passenger numbers, as has happened in other regions globally.
If this were to happen, GoAir, which is already struggling financially since last year’s lockdown, could be at high risk of needing a bailout. The airline has already seen its debt levels rise in the last year and revenues fall sharply due to low demand. The rising debt has pushed the carrier to seek government relief and apply for debt restructuring.
Interestingly, GoAir was recently considering the opportunity to go public, citing the robust markets and aviation recovery. However, with rising cases in India for the first time in months, GoAir’s IPO plans might have to be shelved one more time.
Government support
India has taken a relatively light-touch approach with airline support during the pandemic, despite the huge industry. However, it has rolled out several loan and debt-relief programs to allow companies struggling with the pandemic to continue operating. One of these programs was the One Time Debt Restructuring Scheme offered in August, which GoAir has reportedly opted into for restructuring its growing debt.
However, the airline was never forced into the difficult restructuring process and opted for another government scheme instead, Emergency Credit Line Guarantee Scheme 2.0 (ECLG). The ECLGS provided the approximately ₹800 crores ($108.6mn) loan that will allow GoAir to sustain operations for the next few years, according to Business Standard.
GoAir is a private airline under the Wadia Group, an Indian conglomerate worth billions. With strong corporate backing, GoAir isn’t at the highest risk of collapse for now. However, sustained losses can push any airline into crisis.
Reversal
For GoAir, the last year has come as a shock. For an airline that has long been highlighted for almost consistently turning a profit, 2020 ended any such run. The carrier’s profits quickly turned into losses in the first half of the year as flights were grounded from March to May.
Even once flights resumed, GoAir has seen its market share slip as it operates a smaller network. For now, this $108.6mn loan will be crucial to helping the airline weather this storm and eventually return to profitability.
What do you think about GoAir’s future? Have you ever flown with them? Let us know in the comments!
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