Go Airlines might face turbulence from possible floating-rate plane leases

The IPO-bound Go Airlines is set to induct 22 new planes in less than two years but expects that a possible shift to floating-rate aircraft leases might have an adverse impact due to higher interest rates. The low-cost airline has filed draft papers for an initial share sale worth Rs 3,600 crore and will be the first domestic scheduled carrier to get listed on domestic bourses in nearly six years.

Apart from the prospects of moving to floating-rate leases for new planes, issues related to brand 'GoAir' and certain related trademarks, and indebtedness, are among the risk factors mentioned in its Draft Red Herring Prospectus (DRHP).

All its 55 planes as of March 31, 2021, were under operating and fixed-rate leases but the airline anticipates that future leases could be based on floating rates.

The airline, which announced rebranding itself from 'GoAir' to 'Go First', expects to add eight new aircraft in fiscal 2022 and 14 in the next financial year ending March 31, 2023. These planes will be part of the order placed for 98 A320 neos. Currently, the carrier's fleet has a mix of A320 neos and A320 ceos.

Read | GoAir rebrands as Go First after 15 years of flying

While noting that its indebtedness could adversely affect its business, Go Airlines said that it might be required to switch over to floating-rate leases for planes in the future.

"All our 55 aircraft as of March 31, 2021, are under operating leases under fixed-rate leases and we may be required to obtain floating-rate leases for future aircraft leases. As a result, a significant increase in interest rates may increase our obligations under any floating-rate leases and may adversely impact our results of operations," as per the DRHP. As of April 19, 2021, the company's aggregate indebtedness on a consolidated basis stood at Rs 8,160.09 crore.

According to the DRHP, the brand 'GoAir' and certain related trademarks, are registered in the name of Go Holdings, in which one of the promoters Jehangir Nusli Wadia has 99 per cent stake.

During the re-branding transition period and thereafter, it might use trademarks/ service marks, that primarily consist of the terms 'Go', 'GoAir' and 'Fly Smart'.

As per the DRHP, in March 2021, Go Holdings made two applications to the Registrar of Trade Marks, for registration of two word marks used exclusively by our company, namely 'Go Airlines' and 'www.goair.in'.

In April 2021, Jehangir Nusli Wadia made an application to the National Internet Exchange of India, to transfer 115 domain names registered in the name of the company, from one domain registrar to another domain registrar, namely Net4India Ltd to Network Solutions.

"Our company is opposing the aforesaid applications and have also applied for the registration of these two word marks in our own name. The company also intends to take necessary steps and pursue legal options to establish its ownership over all the trademarks and domain names.

"There is no assurance that these matters will be determined in our favour or that there will not be claims regarding our intellectual property from Go Holdings in the future. Any such events could have a material adverse effect on our business, financial condition and results of operations," the document said.

In the DRHP, the company has also mentioned that some of its A320 neos were grounded due to issues with Pratt & Whitney (P&W) engines in the past and claims have been raised.

"In terms of our contractual arrangement with Pratt & Whitney, there is a limitation on their liability. We have raised claims with Pratt & Whitney in relation to losses incurred by us during this period, amounting to USD 67 million, which is a rate for damages that is currently under discussion with Pratt & Whitney.

"As of December 31, 2020, Pratt & Whitney have paid an advance of USD 10 million pending final settlement between us and Pratt & Whitney," it noted.

Regarding Go Airlines IPO plan, Geojit Financial Services' Head of Research Vinod Nair said the aviation industry's demand scenario is expected to improve as Covid cases is projected to drastically fall by June-July due to lockdown, herd immunity and vaccination drive. This will support the fund raising plans on a long-term basis, he added.

The airline has filed preliminary papers for the IPO amid the aviation industry facing strong headwinds due to the second Covid wave.

InterGlobe Aviation, parent of the country's largest airline IndiGo, was the last domestic scheduled carrier to go public. It got listed in November 2015. SpiceJet and Jet Airways, which suspended operations due to financial distress in April 2019, are also listed on the bourses.